02 Aug, 2011
EBA Millionaire Mentor, Jamie Constable, spills the beans on how to avoid business failure
This week, business turnaround expert and CEO of RCapital, Jamie Constable, specialist in refinancing and restructuring companies that are in financial distress, highlights six prevention strategies to stop your business getting into trouble. Jamie was part of the revival of the Little Chef chain which was shown on TV a while back.
All too often business failure takes business owners by surprise. You can still have large contracts in place but suddenly the cash dries up and your cash flow resembles the Sahara! In our experience at RCapital the two key areas of weakness are: 1. Overtrading and 2. Cash flow management.
All the preventative actions that need to be taken stem from these two key areas.
In addition, you should focus on:
Cash-flow management – it is CRITICAL to your success. Adopt a stringent cash-flow management system and have the right person in place who has responsibility to collect in monies due.
Growing business from your existing customers. Ask yourself: How can you make the agreements with each client more cash efficient? What else can you sell your customers? How can you improve the profit margin and can you get payment up front?
Setting realistic sales targets. You simply cannot base your cash-flow projections on overly optimistic sales targets. Set your sales target as low as you think is realistic and make sure your overheads work for that low sales target, not for a high sales target.
Investing in the best people. As your business grows, the key is in investing in the best people with the right aptitude and attitude to join your team. It is always a false economy not to hire the best. It doesn’t matter if the FD or MD is earning more than you pay yourself. Why? Because they are only getting an income. You are the business owner and major shareholder. Invest in the best not just to perform the function but to grow the business.
Learning to make difficult decisions, fast. If your turnover looks like it’s going to plummet over the coming months, you have to cut your overheads. This might mean renegotiating contracts, cutting back on your commitment and some lower level job losses. You can’t carry staff. Ensure you have the right person in the right role.
Rewarding the stars in your business. Who are the people who go the extra mile for you and who make success happen? Underneath the top tier there are usually some excellent people. View these people also as champions of your business. Incentivize them. Your champions are the ones who will see your business through tough times.
Jamie Constable is an EBA Millionaire Mentor.