Have you noticed that your business credit is shrinking? Many businesses have rarely used or routinely paid off lines of credit, bank accounts with solid cash balances and credit cards usually paid in full every month. But even with these strong financial practices, your credit may have shrunk.
Recently, a client called to tell me that his business line of credit was suddenly reduced. He was called by his banker on a Friday at 3 p.m. and told to be at the bank Monday with a game plan of how he would reduce the outstanding balance by more then $200,000. By the next Monday, two other customers called me with similar challenges. I now had three clients, using three different banks, all with similar issues – extended lines of credit, reduced profit, lower cash balances – all troubling signs to a creditor.
It would seem that a business with conservative financial practices would not experience a reduction in credit. But that is not the case. Credit is not just a function of business practices but also the related risks, including general credit use and fluctuations in the economy.
This is one of those times you may wish you lived in some pristine clear bubble in one of those sci-fi thrillers where the people inside were insulated from outside worries. Your business is part of the economy and the economy has changed. You need to determine what you must do to ensure your business maintains the highest credit rating with access to reasonable credit.
Accountability – Even if you do not like to own up to the results of your efforts, you have to be accountable. This is one of those times you need to be monitoring revenue, gross profit, all costs of doing business, back orders and number of people. Being accountable means you will make the necessary changes to generate more sales, control costs, or downsize, if needed.
Plan – Have a plan to put into place with lightning speed changes. The drastic change in sales, profit, competitive pressure and costs are all going to result in a significantly lower profit margin. As a responsible business owner, you need to be ready to strike.
Innovate – This is the time to look at innovation in your business. For years you have been so busy running from one job or sale that you have not had the time to develop improved procedures and do more for less by eliminating wasted steps. Examine each customer, sale and line of business. Where can you make improvements?
Customers – It is all about the customer. Do everything you can to keep and foster positive relationships with great customers. This means eliminating costs and selling your products at a price to make a fair profit. Listen to your customers – this may be a time they don't want the frills and extras.
Credit Sales – Just as lenders have tightened business credit, you must challenge your policies on extending credit to customers. Ensure that all sales are collected in full as close to the time of sale as possible.
Bankers, Vendors, and Creditors – It may be your bank, insurance company, landlord or other creditor. Keep them informed on how your business is doing. Keeping everything to yourself is not a good idea – they want to know you are doing well.
Some years ago, my father taught me that a profitable sale only occurs when the money is collected, and the customer is satisfied and returns for more business. Profit is determined by you when you establish your terms, select your customers and conduct business. Good customers will appreciate you operating effectively so that you are still there tomorrow to continue to sell to them.
