It’s inevitable that at some point your business is going to run into financial trouble…
Even if you’re financially secure personally, and able to cover your businesses losses; that’s your money, not the business’s cashflow.
If you have a bank or other type of financial backer who can take care of you when you fall short; the business didn’t generate that money, and it’ll still end up costing more when it comes time to pay the money back (i.e., interest or equity payments).
Take steps to make sure you stay out of the red to begin with. As martial arts legend turned IRS fraudster Wesley Snipes said in his very first box-office movie, Passenger 57: “Always bet on black!”
Snipe’s advice refers to a last ditch casino gambling effort when one’s down to their last c-note: to put your remaining cash on “black” at the roulette table in hopes of cashing in big (see urban dictionary) – i.e., a fifty-fifty chance.
Here’s 7 tips that’ll help make sure your business’s financial well-being is a sure thing rather than a variable that offers the same (or less) certainty than a random coin toss:
1. Receivables & future sales projections – don’t count the chickens til they’re hatched!
Receivables aren’t profits. No matter how well you know the customer.
On this same note, you can’t write checks based on money that you think you’re going to make. Sure, the guy from XYZ Inc said he’s going to order 20 boxes of steaks from your wholesale company next month. Would your banker give you a credit line based on a whim like that?
Money isn’t money until its safely in your company’s bank account. You’ll find yourself swimming in debt before you know it if you ignore this simple rule.
2. Get credit from lenders and vendors…
When it rains it pours. If you happen to be in the middle of an open field when buckets start pouring from the skies, you’re going to make mistakes – perhaps run too fast and slip and break your leg, or jump into a cozy-looking cave that just happens to be a grizzly bear den!
If you wait until you desperately need cashflow, you’re going to make hasty decisions – take on a loan or line of credit with a ridiculous interest rate, or jump in bed with someone like the stars of the Shark Tank and have to sign over 50% of your company just to keep from going under.
Apply for a line of credit (see WikiHow) long before you need it, and don’t use it until you do. Asking your vendors (if applicable) for credit can also help you slide by when a customer doesn’t pay out, or a sudden expense pops out of nowhere.
3. Use credit to your advantage, not your detriment…
We all know this one. There is no greater sin than to be down to the wire, with most of your cards maxed out, and have to pay your monthly staff catering bill with your American Express Plum Card that’s now 60 days overdue.
Worse, you’ve been floating all your daily expenses with that card for the last 45 days! Profits are supposed to pay bills. Credit’s just there if you need it. It costs your business way more money than writing a check does, right?
If you just need a little help once in a while, then feel free to use your credit wisely. If the storm’s been raging for weeks, don’t jump in the nearest pool you see! Consider contacting the debtors you owe, or vendors you need product from directly, before laying your high-interest cards on the table.
4. Bank collected sales tax – this isn’t a government loan!
Who among you haven’t heard the phrase “Don’t rob from Peter to pay Paul.”
Well that’s what you’re doing when you use sales tax earnings. Actually “earnings” is such a poor label for the money you collect on behalf of the government. They’ve earned that money, not you!
Put your sales tax away in a separate bank account. Don’t touch it until you write Uncle Sam the check. Better yet: payout monthly if your state allows it (most do) so you’re not tempted to use the funds.
5. Hire a payroll service…
Hire a reputable service to cover your payroll. This might seem like a luxury-type of expense, but they’ll save you a lot of aggravation and possible penalties later on. Let them deal with the collection of fed and state taxes, pension, social security and medicare premiums so you don’t have to.
6. Receivables policy!
Don’t wait until you have your first account that’s overdue by 120 days before you decide you should have had a professional draft you a receivable’s policy. Every contract you sign with a new customer needs to include an “Accounts Receivable Policy & Recourse Statement” (like this example) to explicitly state what will happen after 10 – 30 – 60 – 90 days have gone past a payment due date.
Make sure to set up an agreement with a collection agency who’s able to take the debt off your hands (for a fee of course) when a customer goes into default, stops communicating, refuses to pay, etc. It’s not worth the added stress trying to deal with people who don’t want to pay.
Always keep your cool and plan in advance. Most businesses fall (and stay) in the red because they make brash decisions about credit or receivables, and/or an unforeseen expense pops up they’re not ready for.
I’m betting on black. Are you?
Photo credit: Eric Constantineau – www.ericconstantineau.com