James S. LaMontagne, Esq.
Many business owners are navigating unprecedented problems caused by inflation, high interest rates, disruptions in supply chains, the lack of staff and inventory, and increasing consumer prices. All of this makes for difficult and tenuous operations for many businesses. Implementing a few good practices now may save your business from peril later.
Cash Flow. One of the biggest reasons businesses fail is diminished cash flow. As a business owner you need to understand where your cash is coming from and how you are spending it. Creating a budget (a 13-week budget is typically recommended) allows you to identify what cash you’re expecting to receive and when, and balance that incoming cash against the amounts you’ll need to spend during the same time period. A budget will also provide you with the opportunity to make proactive adjustments where and when needed.
Accounts Receivable. It is always a good idea to have systems in place to manage your accounts receivable. As a business owner, you need to keep a close eye on your receivables and ensure that your customers are paying on time. If a customer slows down in its payments or is making reduced payments, communicate with that customer to determine whether increased collections efforts are needed or if a credit hold or C.O.D. terms are necessary or appropriate.
Invoices should be clear, and understandable. For example, invoices should include, among other things, an invoice date, contact information (name, address, phone number and email address) for both the creditor and customer, payment terms and deadlines, an itemized list of services with a unit price, quantity and total price for each line item and a clear and obvious total invoice amount due.
It is also important to send your invoices to the correct person at your customer’s company. Your customer contact is often not your accounting contact, so ask your customers to whom you should submit invoices. An invoice that is delayed in reaching an accounting department is an invoice that is delayed in getting paid.
And finally, simplify the payment process for your customers. Invoices should indicate which payment methods your company accepts. Telephonic or on-line payments, and how to make such payments, should be offered to customers. In the case of electronic invoices, a clickable link that allows a client to pay via credit card or PayPal should be included.
Inventory: Inventory reduces cash while it remains unsold. Businesses should hold only that inventory that is more likely to sell. Review your sales over the past several quarters to determine what inventory turns quickly and what inventory grows stale.
Expenses: Reduce your spending and cut costs as best as you can without reducing the quality of your product or services. In connection with your 13-week budget and the regular review of your inventory (both mentioned above), determine if there is a way to reduce a cost (i.e. using a different vendor or different method of shipping) or eliminate an expense for an item you can do without.
Other Options: Of course, no one measure or set of measures may insulate your business from all financial distress. Even good practices, such as the ones outlined above, may not be enough. In those situations, your business may need to explore forbearance agreements (those agreements between a debtor and creditor whereunder the creditor agrees not to take collection action or to foreclose for a period of time in exchange for modified payments from the debtor, or, other concessions if payments are suspended) or bankruptcy. The bankruptcy code has been amended to provide those businesses owing less than $7,500,000 in debt, a new streamlined chapter 11 process which aims to make bankruptcy proceedings more expeditious and less costly, while maintaining the traditional chapter 11 process for those businesses with larger debt.
In conclusion, implement good practices to maintain good financial operations and hygiene but if those good practices are not enough, your business has other options to restructure and become financially healthy.
James S. LaMontagne, Esq. is a corporate Shareholder at Sheehan Phinney and based out of the Portsmouth office
