Financial Habits To Keep Your Business Safe From Bankruptcy

| June 22, 2017

The fact is that sales are the cogwheels of your business and are a sureway to avoid bankruptcy. However, cash flow is the oil without which it all cannot function.

A regular cash flow is what your business needs in order to pay your employees, purchase the necessary materials, and basically keep the whole process steady on its legs. It isn’t uncommon for companies that they have to stall their growth because of the fact that the payments simply cannot cover the costs which can, in the end, lead to bankruptcy.

It’s simple – even if you are looking forward to big profits in the future, if there isn’t enough money coming in to cover the expenses, you might never get there.

Ask for deposits on custom orders

If you’ve got a custom or a one-of-a-kind order, then it’s the best idea that you ask for a security deposit which is at least 50% of the total price.

The value of unique products is limited, due to the fact that they are valued only by the ones that have made the order. If you don’t require a deposit, you may end up suffering financial loss if the circumstances turn bad.

Make sure that your customers understand how you stand on this, and include this requirement in your contracts. On the other hand, you should try to avoid having to pay deposits to your vendors for every order.

Inquire that they take into account the good relationship between the companies, as well as your credit history.

Perform a forecast

You need to have a good idea about what your current cash flow is, and what will happen with it in the future. It isn’t uncommon for businesses to be unprepared for the all the costs related to growth.

They think about the increase in sales, which lead to more employees and a greater inventory. However, they forget to ask the question of when all this money is coming back.

In the whole process, they end up not seeing undesired changes in the cash flow, which they could have predicted if they really took the time to perform a forecast. The best idea is a 12-month forecast that maps out everything on a weekly basis. This will help you be prepared for all the future expenses.

Go for continuity sales

A great solution for your cash flow is to focus on customers that buy from you for a particular period of time, and offer them special deals on your products or services.

The best example of this is a product that is based on subscription, like a magazine or a newsletter. The publisher is paid a year or two ahead, and in result, the customer gets a better deal on the cost. These kinds of deals can work for a wide variety of things.

The result is that you get your cash up front, while your customers get the chance to save money on the products or services that they buy.

Work with a collection agency

It’s a difficult task to go after old accounts receivable, and can easily result in decreasing the returns for your company. Generally, a small business doesn’t have the resources, experience, and training, to successfully go after delinquent accounts.

Professionals dealing with creditors voluntary liquidation advocate that if your customer doesn’t pay you for more than 60 days isn’t someone you want to have a relationship with, and demands serious measures for you to get the money.

This is why it is a good idea to work with a third-party collection agency. These agencies are specialized in working with such accounts, and will either go after collecting the money at their own expense for a certain percentage, or purchase the entire debt from you at a discount and take the risks upon themselves.

There is a cost when employing a third-party company for the job, but it’s better than not getting any money at all.

Final words

In the end, it is essential that you make sure that all of your employees understand that improving your company’s income is of an essence for avoiding bankruptcy.

They need motivation, so you need to give them targets to go after. This doesn’t include only collectors, but your sales staff as well. Otherwise, your salesperson will go after the revenue goal without focusing on whether the payments were made on time and in full.

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Category: Bankruptcy, Business

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