BUSINESS BASICS SERIES
By Dan Cavalli

You have recognised the red flags that warn you in business that something is wrong. People with money didn’t come about it by luck. Many times they have had their business go broke and have had to start again. 

 

Step 2. Step Back And Evaluate  
Don’t throw good money after bad. Remember that when you spend money on the product or for materials you can’t get that back unless you sell it.

The rule here is that you never borrow money to keep the business going. It has to stand on its own two feet. Money can be injected if it is for a capital item that will over time produce improvement in profits.
                                                                                                        
Step 3. Cost Cutting and Cash flow
A business must have access to working capital. Some ways to enable you to do this may be:

1.    Overdraft from the bank
2.    Credit line from the bank using your business or house as equity
3.    Numerous credit cards
4.    Fixed loans from banks, friends or relatives

Step 4. Managing money through your bank account (“Doc 3”)
This is the easiest way to manage a business’s cash flow and profits. The system is broken up into 4 (four) bank accounts:

1.    Business account
2.    Business money management (overdraft) account
3.    Tax and other yearly expenses account
4.    Living account

Step 5. Too Close Or Not
If you've realistically cut expenses just to maintain a business and it still loses money each month and you can’t see the possibility of improving your situation, close it down and start again.

Summary
Even if you aren’t in crisis, cut costs. You will enjoy making a lot of money instead of just surviving. If you are in crisis act quickly and turn the ship around.

DOC 2
                 
CHECKLIST FOR  FINANCIAL BUSINESS CRISIS EVALUATION

1    Can I pay my business expenses on time when due     
2    Can I pay my business expenses without touching savings     
3    Can I pay my personal living expenses when required     
4    Can I pay my personal living expenses without touching savings    
5    Are my personal and business accounts growing    
6    Do i have enough money for holidays each year    
7    Do I have a debt free credit card    
8    Can I put some money into investment monthly    
9    Do I have a savings account that holds 10% of all monies that I earn     
10    Do I have enough money saved so I can survive for 6 months without an income in case of emergency    

Total number of yes checks  ________  X 10 = ________Divided by 1.2 = ________

X 100%           = ________ % chance of being in a crisis

If your results are 15% or less chances are you have a good business. If your results are 16% to 33% you have a very good chance of tweaking your business to set it right. However if the results are above 33% the chart below will tell you what you should consider doing in your business to rectify and bring it into the correct balance.

Dan Cavalli
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