“Risky” is a word you certainly don’t want associated with your business, and when you are a micro business it doesn’t take much to shift from a healthy position to being viewed as a risk to do business with.
Once you have earned a negative reputation, it can be tough to shake, and with businesses hesitant to work with you, or investors failing to see your business as a worthwhile investment, it could soon spell the end. Below are some top tips to ensure your small or micro business is protected from risky business.
Smart money management
It may seem obvious, but being smart with your money is the number one stumbling block for small and micro businesses. Unstable cash flow has a direct link to whether a business is ranked good or bad to do business with.
Below industry average “Days Beyond Terms” (DBT), which is how long it takes a company to pay their bills over the agreed payment terms, can reflect poorly on your business, and when you’re a small operation even a minor oversight in cash management can place your business squarely in the danger zone.
If you’re already having trouble staying on top of your cashflow, the biggest mistake you can make is to bury your head in the sand. Be aware of the problem and take back control of the situation – identify where you may be able to scale back costs, make adjustments to bring your payments to suppliers in line with when your customers are paying, and chase those customers to pay on time, which leads me nicely onto my next piece of advice.
Late payments can not only lead to a “risky” label, it can be a matter of life and death for small and micro businesses. The problem is widespread – Creditsafe’s Watchdog Report for the first quarter of this year found that debt owed to UK businesses was £580m higher than in Q4 of 2017.
Consider enforcing stricter payment terms or adding interest for overdue payments – small business owners don’t have time to waste simply chasing up serial late payers instead of running the business itself. Diligence when it comes to admin is also more important than you might think, as an invoice error such as an incorrect purchase order number or billing mistake can delay a payment until next month’s payables.
As the old adage goes, “fail to prepare, prepare to fail”. For micro businesses, unforeseen circumstances can set a chain reaction in motion that can quickly leave you struggling to get your head above water. Imagining worst case scenarios, while not much fun, can be an extremely useful exercise in ensuring your business is equipped to adapt to any adverse circumstances.
For example, what state would your business be in in six months if you were to lose your biggest client tomorrow? How will forecasted interest rate rises affect your business? If you have contingency plans in place, you are essentially eliminating the risks posed by factors outside your control.
Do your homework on the businesses you work with too – a company credit report like those offered by Creditsafe will provide insight into a company’s financial performance and payment behaviour, allowing you to assess whether they are a viable partner.
Honesty is the best policy
If you’re already in a risky position, it is possible to come back from the brink. However, if other businesses view you as a liability, reversing this perception is not going to happen overnight.
Utilise the wealth of resources available; the Federation of Small Businesses offers support and advice that can be invaluable to a strained business; Creditsafe’s Risk Tracker allows you to monitor key changes to suppliers, or any other business that affects yours – you’re never going to shake your risky reputation if the businesses you’re working with have their own problems.
Be brutally honest with yourself about exactly what problems led you to this position, and ensure maintainable processes are in place to avoid history repeating itself. Be clear with your customers, businesses you work with and investors, and seek their advice. Once you have taken steps to resolve any issues you may have, make sure you are letting those key individuals know about the changes you have made, with a view to making a fresh start.
Chris Robertson is UK CEO at Creditsafe
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