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Credit crunch - Effect on Small Businesses
Of late not a day passes without seeing something along the lines of credit crunch, recession, economic meltdown, increasing mortgage prices and a fall in the housing markets; The list goes on and on but one thing that strikes me is the frenzy created by the media's excitement where each news agency wants to be the first one to break out a story about the "Ultimate Global Economic Meltdown." Unfortunately for those of us who depend on this type of journalism our fingers are always on the panic button.
Effect on Consumers and Small Businesses 1. Reduced cash flow because people now no longer spend as much money as freely as they used to not because they can't do that but because they're afraid of what might happen tomorrow. This results in reduced cash flow in the business and the most hard hit businesses are the small ones and the new business startups. 2. New business startups don't readily get financial assistance because the big guys are not willing to lend as much as they used to. 3. As a result fewer startup businesses are able to sustain their business operation despite that high number of businesses being created, but also a high rate of business closures. 4. High Cost of Investment - obviously the cost of borrowing has risen very sharply and as a result the borrowing capital with the intention to invest is risky business because there is danger of your debt exceeding the value of your investment from that capital.
5. The Big Boys Win - with high cost of of borrowing; only the chaps with the big money can win ! Survival Tips for Small Businesses In order to maintain cashflow so as to operate a sustainable business, small businesses need to adopt survival techniques : * Pay your Debt BUT Slowly - Interesting point from Casey Gollan, but it works ! Try to balance your incomings and outgoings; don't rush to clear your debts just because you want to boast about not having any debt. * Quality Customers versus Quantity - don't accept new customers willy nilly with the hope that "selling volume" will increase cashflow. Make sure you make your big value customers pay; having one 100k worth of order from a single customer may be worth more than 150k worth of orders from 10 customers; you need to think about your operational costs. * Validate your new Customers - this follows on from the previous point. "New customers are great, but new customers that actually pay are even better." [Mike Preston] I couldnt agree more with that statement. Your financiers wouldnt be very pleased with a quantity sign up rather than quality ones. It's not a question of how many customers you have signed up, it's a matter of how much are those worth to your business. Well, I hope you enjoyed reading this piece, see you next time; in the meantime; why not leave me a comment; that would be greatly appreciated. |
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