The Factor of Time
Time is a precious commodity and one not to be squandered. Often time.....is the critical factor between success and failure.
In prior blogs I have made references to how important time is in finance, and then more generally - to business viability. If your business is running tight - with losses or cashflow gaps starting to show, then this article will provide you 10 reasons to take corrective action now.
The greater the duration of a loan, the larger the interest cost to your business. Miss a payment or exceed your approved limited you only increase your interest expense.
- Loss of key staff
Staff can be very savvy to the flow of a business – so if they see a business decline - then you risk losing them. Losing key staff compounds the problems as a struggling business does not have the management time, advertising budget or resource to train new staff. Without them - someone else also has to cover their work, which often results in two roles being completed at 70% quality.
- Creditors get angry
Creditor relationships quickly sour when you stop paying the bills or the "cheque in the mail" excuse becomes the default response. Ill-will is created, with credit terms suddenly changed, penalties applied and in some cases, the knock on the door from a collection agency. This can also lead to a visible default on your credit reporting along with the additional costs caused by legal or collection actions.
- Suppliers dry up & stock lines dwindle
Off the back of poor creditor payments - new stock supplies will be restricted to COD. At best this causes another shock to your weakened cashflow, but at worst; you may not be able to source core stock or materials. Downstream you will see the number of your moving stock lines dwindle - causing stock outs on what are normally your best sellers. You may still have a warehouse of slow moving stock, but unless you can convert this to cash though sales, it is of marginal value. If you don't have the stock, you won't get the sales and you will lose clients.
- Bankers lose patience
Bankers lending authorities are restricted to a narrow band of client behaviour, allowing an odd excess on your account for a few days or week. But.....when this starts becoming a large or frequent issue, then it will start to drift out of your bankers direct authority, meaning that either your cheque or drawing will not be paid, or it will require your banker to raise paperwork to support your business. History shows that repeated excess issues will see your banker lose patience and banking will become difficult.
- Penalty rates start to apply
Penalty rates are simply just additional cost to your business for no value. Banks will charge these for missed payments or excesses over limits, creditors will charge for being outside terms, utilities (power, gas, telco etc) for overdue accounts, as will the ATO. Penalty rates simply make a bad situation worse.
- Personal stress
From the many clients I have worked with over time, nothing seems to build stress more that poor business performance. The sense of failure to deliver sales, issues with cashflow, the dodging of supplier calls etc, all put additional pressure on the business owners. This sort of situation can also impact the way people think, exhibiting a lack of confidence, self-doubt and starting to view things "a half glass empty" - all of which have an adverse impact on the business.
- Capital gets drained
Most business can take a small loss by drawing on the capital resources within the business. When these run out, it is common for small business to restructure finances to enable a further capital injection from the owners etc. Depending on the depth of resources, this may enable a couple of injections - but at some point this also runs out. At this stage, the position gets murky as not only is the business not performing, but its resources have been depleted or greater debt has been taken on.
- Public/shareholder opinion falter
For the larger business with a greater public profile and a larger shareholder base, poor operating performance impacts public opinion. This can see quotes/bids for work shuffle down the pile or shareholders look to either exit their investment or at best - choose not to contribute more.
- Taxes build
The ATO will initially show some tolerance and understanding for cashflow issues, but this patience will lessen over time. Tax bills will only grow, often helped by a healthy penalty interest rate for late payment.
The old line "time is money" has never been truer - with the above 10 points demonstrating how time delays - only make a bad situation worse.
The solution - act now or act quickly.
When you see issues appearing in your business - DO SOMETHING ABOUT IT. Ensure that you get to the true cause of the issue, (poor margin, poor sales, bad debts, FX movements, expense blow out, fraud, etc) and then build an effective plan to deal with it. Do not make the mistake of ignoring the issues and hoping that they will correct themselves.
Time is precious - use it well and act when you see an issue. Don't wait for the above warning signs to appear in your business, as they will only weigh around your neck and make business prosperity all the more difficult to achieve.