Accounting Treatment Of Bank Overdraft In Cash Flow Statement Beat the Credit Squeeze With Flexible Business Finance

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Beat the Credit Squeeze With Flexible Business Finance

A credit squeeze is a fact of business life and it’s not just about money, it’s also about market confidence. There are always winners and losers in every business situation, and confidence and business finance can beat a credit crunch.

1. Ensure that the business’s bookkeeping and financial accounts are up to date.

Keeping accounting records up to date is an essential first step for a business owner to ensure that the business is exactly where it is. Reviewing recent financial performance and taking positive action to increase sales and margins where possible and controlling costs by eliminating waste protects the business from surprises and downturns.

By having recent costs available, views and actions can be taken to reduce those costs and in some cases increase business costs where the profit potential is highest. For example, a detailed analysis of advertising and promotion costs may indicate that some campaigns should be cut, while money saved is invested in better performing areas.

Not all sales yield the same profits for a business. The impact on working capital can be minimized by focusing on the products and services with the highest profitability which can reduce the pressure on working capital funds.

2. Creating a realistic business plan can help the business plan move forward.

Many small businesses prepare a business plan when starting up, especially if seeking government grants or business financing. Failure to create an updated business plan during a credit squeeze can lead to plan failure.

During a credit squeeze a business may find itself operating in a volatile market where past rules and actions may not be evident in the future. Banks raise the cost of borrowing, customers save money by leaving the market, and sometimes fail to pay, or at least take longer. Suppliers tighten their grip by raising prices and demanding tighter payment terms.

Businesses take steps to protect income, cash flow, liquidity and survival in extreme situations. That is why the plan is bound to fail to meet these new challenges.

Create a business plan based on recent history and follow recent trends to maximize financial results. Input into the financial forecast the opportunities that can be exploited to grow the business and take a realistic view of potential negative factors.

A business plan should include both a written outlook for the next twelve months and a profit and loss account reflecting an optimistic outlook and a worst-case outlook with contingency plans should the worst-case scenario become a reality. A cash flow statement calculated from a business plan is an important tool to show the impact on liquidity.

3. Improve financial flexibility to increase business finance options.

Arrange business financing with multiple banks and expand the number of financing options. A single bank cannot offer overdraft or loan facilities or the competitive rates required by a business. Look at the financial market as a competition between suppliers to finance your business and use many to find financing among them.

The impact on business growth can be mitigated by increasing financial flexibility options for bank accounts, loans and overdrafts, and financing property purchases. Consider leasing agreements, invoice factoring and other specialist financial institutions in addition to the main bank account provider. Cash flow and working capital requirements are important.

4. Go out and get more sales.

It’s easy to get discouraged when sales decline. Fight it and remember how the business acquired new sales channels and customers in the past and take advantage of future opportunities. Focus on the unique selling points of the business and its products and revitalize campaigns to increase sales.

Consider sales and product diversification into both related and other areas. There are always new opportunities, including new products and markets, increased geographic presence, and selling existing products to a wider audience. It can help to list all the sales activities in the sales channel and find more sales channels that the company can operate.

5. Ask for professional advice and assistance.

Increase the level of communication with every professional adviser, including accountants, financial advisers, solicitors, bank managers and business advisers and any managers of financial institutions. The more pleasant and approachable the more opportunities and more favorable responses are possible.

Not a silly question when the future of a business and its employees is at stake. Discussing options with various business advisors expands those options, and if increased business finance is needed for future growth or survival, a high level of personal communication will ease the way.

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