Sin number 15 - Not having a back up plan
By Greg Carroll
As discussed numerous times already, things in business don't always go according to plan. This is just a fact of business and life for that matter. Your ability to adjust to these changes will largely depend on what type of back up plans you have in place. Here are just some of things you should consider having in place.
Don't wait for bad times to arrive before you take action
There is one thing you can guarantee about money - it's easy to get when you don't need it, and a lot harder get when you do. Therefore you should always be planning ahead when it comes to cash reserves.
A common mistake people make when they go into business is leave their job, start a business, get about 6-7 months in, start to find things a bit tight, and then approach the bank for a loan. Most lenders won't even look at you unless you've been trading for 2 years so your chances of accessing funds are not that high. The time to get the funds in place for the business was before you left your job.
So even if you don't need always have a way of getting fast access to cash or funds for a rainy day. This could be having some shares you can liquidate, a cash management trust, access to a line of credit facility, ability to redraw from your home loan or even just a standby credit card (Not necessarily my preferred option but an option nonetheless). It could be a relative or friend you can call on for a short term loan. You may never need to use this and it should only be pulled out in an emergency, but it is important to have.
Having access to emergency cash will probably only buy you some short term relief, but what happens if the problem is more long term. For example you are injured and can't work for 6 months, what are you going to do then?
Insurance can be a way of managing this risk. There are a range of insurances you can have for yourself and your business that can provide protection in a number of circumstances. This is by no means an exhaustive list:
Trade debtor insurance - this was mentioned earlier. This provides protection in the event that one or more of your debtors fails to pay you. Imagine the businesses that were suppliers to Ansett. While the closure of the airline would have had a significant impact, having debtor insurance may have prevented them from closing their doors.
Freight insurance - if your business involves the movement and transport of goods and materials this type of insurance could be worthwhile. Imagine if you were a distributor and had stock being forwarded to a client but the truck carrying the stock rolled over. Unless you had insurance in place you may have to wear the cost to replace it.
Insurance for stock, plant & equipment and property - this goes without saying for any business. What would be the impact to your business if you have to replace stolen or damaged stock and equipment?
Income protection - If you do have to take time off work for an extended period this can at least keep some income flowing in so you can meet your personal commitments.
Business expense insurance - this insurance can protect you in the event that your business is unable to trade for a period of time. An example would be where your premises are destroyed by fire. This insurance will cover your business expenses during this down period until you can get the doors open again.
Partnership insurance - if you are in a partnership then you are liable for the actions of your other partners, and may find yourself the target of legal action for something you didn't even do. This type of insurance can provide protection against these sorts of risks.
Life insurance - If the worst should happen then at least you can provide for your family's well being.
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