Robbing Peter to pay Paul … do you really want to go there?April 28, 2019
We all know that businesses are cyclical. The skill is knowing your business’s cycles, when it will be up and when it will be down and how to manage into the future. Some business owners are better at this than others. Too often a business will enjoy the rewards of an up cycle and then hit the down cycle with no plans in place. Suddenly payments from customers slow down. The simple equation is then … less money coming in, less money to pay suppliers. But should it be that way? Maybe a business extends its borrowings to keep up, or negotiate new terms with suppliers, or just not pay them at all until more money comes in.
A solid client/supplier relationship that may have been in place a long time can very quickly sour with non-payment. A business can suddenly find themselves without some corner stones (ie product and/or service suppliers) that make their business happen.
If you find your business in this position you need to look at what is happening. You know income has slowed down, but have your expenses? Some expenses will not shift very much if at all. But other expenses should fluctuate with the cycles. Business owners also fall into the trap of not compromising what they take out of the business. Is it realistic that your own ‘income’ remains at the same level when business is down? Is it realistic to expect your suppliers to become an impromptu line of credit?
Businesses that do not plan ahead for their cycles can quickly find themselves with additional credit that now needs to be serviced and poor (or non-existent) relationships with suppliers. This will effect your customer relationships and it also makes it so much harder to get back into an up cycle. It really takes the fun out of having your own business!
What can you do?
– Have a BAS Agent/Bookkeeper on your team
– Maintain good communications with your customers & suppliers
– Recognize your cycles and plan for them
– Know which expenses should fluctuate
– Keep your bookkeeping up to date at all times
Now is always the right time to review how your business is going today, tomorrow and into the future. Don’t put it off. You do not want to have to rob Peter to pay Paul! It is the beginning of the new financial year so sit down with your BAS Agent/Bookkeeper and schedule regular discussions and reviews of your business. Your goal should be not only to survive the ups and downs but also to strengthen your business in the coming year and avoid those downs.