As we have seen in the last few weeks, the world is changing at light-speed. Before the world was struck by COVID-19, a large percentage (over 60%) of businesses failed and went into insolvency in the first three years. I expect the same percentage will fail or go into insolvency in the next three months . So, what are some actions businesses must do now to avoid insolvency?
Make business decisions now
We’ve all heard the saying ‘You’re like a rabbit in the headlights’. Don’t be! Make business decisions swiftly and hard. Don’t wait until your sales drop and then a little longer before looking at overheads and how to reduce them. Don’t wait to look at diversification. Don’t wait to look for different sales channels. Act now.
Maintain a positive cashflow
Fred Adler, a pioneer of venture capital markets in the USA, had various epigrams that some called Adler’s Laws. His most famous one focused on the things that made a business successful, such as
- being able to generate more cash than was spent; and
- having the cash where and when you need it.
He regarded both as vital to a business’s survival and I do too. Some tips to take to heart are:
- Forecast cashflow regularly and often
- Follow correct invoicing procedures so you can utilise legal avenues if you need to (e.g. the Security of Payments Act) or utilise debtors’ insurance
- Invoice more regularly and make payments less frequently
- Implement tight controls on spending authorities
- Eliminate discretionary spending
- Embrace technology
Build relationships with your bank or financiers
What I mean by relationship is a real personal relationship with the decision makers at the bank. They need to know you when you are in the same room. They must be able to trust you as a person. Get to know them – have a regular coffee catch up. Take an interest in them as a person. Know and ask about their families or their interests. You will get more support from your bank if they know you personally. The same goes with insurance. I encourage my clients to use an insurance broker because you’ll have only one point of contact if there is a claim, and they’ll know you and your business well.
Ask for help
I hate seeing businesses fail because either they seek help too late, or their pride stops them from asking for help, or they think the help is too expensive.
There are only three reasons a business fails.
- A lack of business skills in the business
- A lack of attention to applying business skills within the business
- Mostly working in the business rather than on the business.
“Surely not!” I hear your cries and jeers. Don’t misunderstand what I am saying though. And don’t just take my word for it.
Michael E. Gerber, esteemed author of the bestselling book E-Myth Revisited, nailed it when he said:
‘The assumption is that they understand the business because they understand – and maybe are experts at – the technical work of the business. They think they know the work; they are qualified to run the business.’
What he means is you may be a technical expert or genius practitioner, but you also need to know how to run a business. I haven’t seen many electricians or hairdressers go out of business because they are bad practitioners – but I have unfortunately seen plenty go out of business because they do not have the skills to run their business well. The good news is skills can be learned. All you need is devotion, time, and help from a trusted advisor.
‘Get comfortable with being uncomfortable. When you start your own company, you have to get used to learning how to do things that you don’t know how to do.’ – Heidi Zak, Founder of Thirdlove
Get help to learn the skills to run your business better by engaging a hands-on business advisor . Be a sponge and learn from them. The cost to do so is not an expense, it’s an investment – and you will get a positive return on it