Don't Survive - Thrive

When the going gets tough, the smart operator makes the most of it

Being in business isn’t just about keeping afloat by treading water during these tough economic times. You want to be thriving, not just surviving. The way to do that is to take advantage of the lull and make sure your business is ready for when things pick up again. Be proactive, not reactive. If you are reacting to a problem, then it’s probably too late and your business may already be in trouble. There is a direct link between the passage of time and the narrowing of options.

When it comes to staying afloat this winter, early detection is definitely the best protection. Keep an eye out for telltale signs that your business may be struggling and address small issues as they arise before they become real problems. These are some common factors that are present when a business is in trouble:

• A pattern of steadily declining revenue
• Loss of major customers
• Changes in key relationship such as major suppliers or financiers
• Being unable to pay suppliers by the due date or only paying when they start knocking on the door
• Overdraft is constantly at, or over, its limit
• Loss of key personnel working in critical areas
• Reluctance to provide routine information such as monthly or financial performance reports
• Change in attitude or demeanour of the owner.

If some of the above factors are ringing bells for you then it is worth speaking to your advisers. There are a number of excuses not to do this: cost, time, feelings of embarrassment or inadequacy. Asking for assistance when it is needed does not mean you have failed; it actually means that you are a prudent businessperson and know your limits.

Keep your advisers in the loop. Your bank will not be impressed if the first it hears of your business being in trouble is when you default on a loan repayment. Accountants are great business advisers and can assist with ‘finding’ extra cash. If you’re not sure what to do first, see your lawyer. Lawyers can assist in the early stages by providing you with guidance on how to deal with various stakeholders in the business, as well as opening up lines of communication with your other advisers. Most importantly, everything you tell your lawyer is confidential.

At the very least, take the time this winter to plan for the future; review your strategies, systems and policies. Step back from the day-to-day running of the business and look at the big picture. Ask yourself the following questions:

• Am I paying the bills on time?
• Are my customers paying on time?
• Is my business structure exposing me to risk?
• What are the financial risks with my current funding, cash flow and budgeting?
• Are there any compliance issues?
• When does my lease expire? Can I renew it? When is the next rent review?
• Do I have terms and conditions of trade? Do my customers know about them? Do my customers personally guarantee my invoices will be paid? Can I register a security interest over their property?
• Does each employee have an employment agreement? Do I have one?
• Is my brand protected? When does my trade mark expire? Does it cover all the goods and services intended?
• Is my personal property and family home at risk if the business does not succeed? Is my spouse’s property safe?
• Have I given a personal guarantee for the business debts?

Asking these sorts of questions can bring any issues you need to address to the surface. For example, you may be rebranding your business and giving your premises and a new fit-out. After giving your business the winter health check mentioned above, you might discover that your lease for the premises actually expired last year. If you’re using the standard Auckland District Law Society form of lease, that probably means you are now on a month-to-month tenancy and could be evicted with one month’s notice. It would be best to pick this up before completing the new fit-out so you can enter into a new lease for a longer term. If you didn’t pick this up in time, and your landlord terminated the lease, you may also have to put the premises back to the state it was in at the commencement of the lease. That could be quite a costly exercise if you have just forked out for a fancy new fit-out.

Another issue that is often revealed is that many businesses are trading without any terms and conditions of trade. The terms of your trading with customers is particularly important when customers are not paying your bills on time and you need to commence debt collection proceedings against them. Your terms of trade will assist this process if they contain a clause allowing you to register a security interest over the goods you sell to customers on credit, or over all their present and future personal property. You customers should sign these terms before you do any work for them or supply any goods to them on credit. By registering your interest over the customer’s assets, you will secure the right to repossess and sell those assets if your customer does not pay you as required. You won’t be able to do this if the customer doesn’t sign the terms, or if you don’t register your security interest and someone else has a registered security interest over those goods.

You may have heard the saying, ‘success happens when preparation meets opportunity’. So batten down the hatches and ensure your business stays afloat this winter!

Isabel Blake
www.whangarei-lawyers.co.nz