Sometimes your own success can be the biggest danger. Many advisers warn businesses to be on their guard for over-trading and it remains a trap that is never far away when the economy is growing. The harder you work to win new customers, the better your product, the more chance there is that an order will come which is larger than any you have received to date. Or an invitation to tender for a project that would double your turnover for the year.
Saying ‘no’ is the hardest part of running a business when attractive opportunities come along, especially for small businesses. Investors want to hear about growing returns and the bank wants to see turnover rising. Your employees may have bought in to the excitement of a great leap forward too.
When that situation comes along, there are several steps that can be taken to manage the risk and take advantage of the opportunity.
Trade credit insurance is one of the services that will protect your cash flow and give you greater freedom to trade. Setting up cover for major contracts or for your customer portfolio can improve your position when requesting financial support.
Protect your cash flow
- The most important is to check your cash flow and work out what the impact will be. What will you need to spend with suppliers to meet their order? What could the impact be on workforce costs? What income is expected and when will it arrive in your bank account?
- Look at your financing and make contact with the bank. Are funds available if you need them? Could investors or other backers help to deal with the additional call on funds?
- Make sure your existing cash flow is protected and your revenue plans will not be disrupted. There could be a risk that a customer pays late or does not pay at all. Without the payments your costs would not be covered and your financial position would be weakened. If it becomes an emergency, you might find more finance is only available on tough terms.