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Ten top tips for avoiding a financial crisis

A sudden and unexpected financial crisis could be damaging - if not fatal - to the future of your business. Read these ten top tips for avoiding the worst case scenario.

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A sudden and unexpected financial crisis could be damaging - if not fatal - to the future of your business. Prepare your business to avoid the worst case scenario.

1. Keep an eye on cash 'Turnover is vanity, profit is sanity.

Only cash is reality' is a mantra directors would be wise to bear in mind.

2. Sweat your balance sheet

Continually seek efficiencies, even in good times. This will protect you against the worst of bad times.

3. Stock control

Effective management of stock can improve profit margins and mean the difference between success and failure, especially in a downturn.

4. Bad debts

Rigorously review and chase outstanding invoices; do not allow your business to fund other companies. A £5,000 bad debt, in a business with profit margin of 5%, will require £100,000 of new business to service it.

5. It's good to talk

If you keep lenders, customers and suppliers regularly informed, they are more likely to show compassion, understanding and support in a financial crisis.

6. Spread your risk

Do not rely on one customer too heavily. That way, if they go into insolvency, the knock-on effect on your own company will be minimised.

7. Ransom suppliers

A supplier's insolvency can also be dangerous if you overly rely on one for key items. Do not be a hostage, otherwise your vulnerability may be used against you to force price increases, even on an existing contract.

8. Know your boundaries

A good manager is one who recognises that, sometimes, outside advice will provide the best solution in a downturn.

9. Act fast

Directors and owner-managers need to be able to react quickly to changes in their marketplace. They need to ensure they have a decision-making process in place that enables quick responses to sudden economic threats.

10. Take advantage

A downturn affords the opportunity to take on skilled staff and new clients from those businesses that ignore the warning signs.

To read more on how to keep your finances in good health, click here. 

Find out how the Forum can help you to manage your business finances. Call us on 01565 626 001.

Last updated 28th June 2016