Running a business can take up an inordinate amount of time, dedication and energy in order to be successful. There is always a danger of being distracted and losing sight of important business aspects.
We spoke to Lauren Cullen, a Licensed Insolvency Practitioner, to share her unique perspective on running a successful business. With over 13 years of experience in the industry, she has worked closely with many companies that have regrettably failed and required an insolvency procedure. However, she has also worked with a large number of companies that have been highly successful and used a solvent liquidation in order to release reserves to shareholders in a tax-efficient manner.
Here are Lauren’s five critical areas that all business owners should monitor.
Check the bank account regularly
Knowing how much you have in your account is essential to keep a healthy cash flow. There are bound to be times when cash flow is tight but if this becomes a regular occurrence then you need to seriously consider your options.
Alarm bells should ring if:
- the bank account is overdrawn or always at its limit
- cheques drawn on the account are bouncing
- the bank has refused to increase the overdraft or refused to provide a loan
- in the case of a limited company, the bank is now asking for personal guarantees from the directors.
More reading: how can I maintain a good cash position?
Getting paid by customers is key to the survival of a business and I have seen all too often the knock-on effect of bad debts, normally when a business is overly reliant on one customer. Debt collection is a vast subject in its own right and too large to give it justice in this article, but here are some brief points to consider:
- Keeping your bookkeeping up-to-date, monitoring how long it takes customers to pay and regularly chasing debtors should be done as a matter of routine.
- Check the customer’s credit position when they place an order. If there are outstanding invoices then seek to get these paid before issuing further credit. If this is an ongoing issue with some customers you should consider seeking assistance from a debt collector. But you must be sensitive to the ongoing trading relationship.
More reading: how should I chase customers for payment?
Suppliers, Landlord and Employees (Creditors)
Paying creditors as they fall due should be the routine, but on occasion, this can prove difficult and it can be easy to fall behind.
- In order to save you from falling foul of this, regularly ask yourself:
- Do I know the current position with creditors?
- Am I paying creditors on time?
- Are demands coming in for payment?
- If the business requires stock, are deliveries delayed because of non-payment and therefore sales are behind?
- Are suppliers requesting changes in credit terms?
- One area I often find businesses struggle with is to set aside funds to pay the rent, as this is normally a quarterly payment. An easy solution to this would be to ask landlords to pay monthly instead.
- Paying staff on time is paramount; the consequences of delaying this can be devastating as staff will sense financial difficulties, be concerned with their financial security and start seeking new employment.
More reading: how do I operate payroll?