As a 23-year old business, Cedar Rose has been through some rough seas – a major client going bankrupt in the year 1999, having our offices burgled in the year 2000, moving from the UK to Lebanon in the year 2004, war breaking out in Lebanon and moving operations to Cyprus in the year 2006 and economic collapse in Cyprus in the year 2013 to name but a few. More than our fair share, I think you will agree, but actually the kind of risks that we aim to ensure our clients are well prepared for. With #Brexit looming and global trade battles sending tremors throughout the economy, it is important that businesses batten down the hatches and be well prepared.
So what is the secret of keeping your head above water through troubled times? Actually, from a financial perspective there is one main simple rule – keep an eye on your cash flow. But what does that actually mean, and how can you do it, you may well ask? Well, there are several things you need to monitor.
Firstly, you need to know your clients. When dealing with clients around the world in several different countries, it is difficult for you to get to know all your clients face to face without a great deal of expense. This is where credit and due diligence reports come in handy. A good credit report can tell you who owns a company, how long it has been established, how long it has been registered, where it is registered, how much the registered and/or paid-up capital is, crucially how large or small the company is, how many employees they have, what kind of premises they own or rent as well as financial information such as revenues, profits and in many cases full financial statements. You will also get an informed credit opinion either from a seasoned professional credit analyst, or a complex algorithm which should go through the same analytical process – only automatically. This is a guide as to how much any company could possibly extend credit to your client that they would most likely have the ability to pay back. However, credit reports do not take into account how much credit you can afford to extend to the client – that is your job to judge. Also, you must bear in mind that there may be 100 suppliers all extending the maximum credit to the same customer, and if they face challenges getting paid, it can cause a domino effect. If you are planning to sell high-value goods or services to the customer, or go into a partnership agreement, then it is always wise to conduct additional due diligence to find out who is ultimately behind the company, what their local reputation is, whether they are politically affiliated, etc – who knows where the trail will lead and what dark secrets you might uncover.
Secondly, you need to know how much funds you have available at any one time. This can actually be done using a simple spreadsheet, but there is accounting software too that you can use – or if you only have one or two accounts, get daily updates from your bank to know the balance and make sure that funds are available to meet any outgoing expenses.
Thirdly, keep an eye on your company’s accruals. These are expenses or sales which have been earned but have not yet been recorded in the company’s accounts. Some examples of accrued sales would be annual membership payments, fees for any kind of service or agreement that lasts over several months, retention fees, etc. Accrued expenses could be the same – services subscribed to or commissions due to salespeople that may be earned in one year but are not due to be paid until the next. The importance of being aware of accruals is because a) you do not want to have spent $12,000 annual membership fees in the first month, when the customer could ask for a refund of $11,000 in the second month and b) you should keep aside funds already promised such as employee bonuses and make sure they are available at the correct time. To do this, it is important to get monthly management reports from your accountant so that Directors and/or Proprietors are aware at all times what the situation is. Too many companies fall foul of Directors overspending because they see there is cash available on the company account, but perhaps don’t realise that there are large payments due to go out. Keeping book-keeping and accounts up to date – as laborious as it may be - cannot be underestimated, even in the smallest business.
Finally, maintaining good relationships with your clients and suppliers and bankers is very important. If you are on friendly terms with your clients, they can often help by paying invoices early when you are facing liquidity or cash flow issues. In return, you can help them by consistently providing a good service, delivering your goods or services earlier sometimes, giving discounts or even just remembering to send them good wishes on special occasions which relate to them or their country. With suppliers, if you also pay them always on time, they are more likely to be flexible and trust you at times when you need to ask for extended payment terms. And last, but not least, in times of need, your banker could be your best friend. Keeping a well-maintained bank account is essential if you want to succeed in business for any length of time. This means not taking unauthorised overdrafts, not bouncing cheques, always having the cash available to cover loan payments, direct debits and standing orders, keeping your credit cards paid up to date and responding promptly to KYC and compliance requests. With the challenges they have faced over recent years, banks are not always able to help you with short term loans or extended overdrafts but they are certainly more likely to if you are a trustworthy and “well-behaved” customer.
From an operational point of view, there are other considerations such as daily back-ups of your data, strategic and contingency planning and regular country risk analysis. Keep your eye on the ball, stay ahead of the game and you won’t just stay afloat – you will learn to fly!
For more information on your client’s credit rating, or for more in-depth due diligence, order a freshly investigated report at www.cedar-rose.com