Dealing With Uncertainty

By Gary Honig July 15, 2011 Leave a comment

The calamitous economic environment we find ourselves in creates peril and uncertainty when it comes to staying out of trouble. The ripple effect of banks going out of business or defaulting on existing loans is excruciatingly painful to small businesses. You can no longer take for granted the loan you have or were expecting to secure.

Situations beyond your control can go wrong and are doing so daily.

A key supplier might get their credit line pulled, thus putting your whole operation in jeopardy, overnight.

Your largest customer might suddenly without notice declare Chapter 7 liquidation and the big payment they just made to you might be subject to a preference claim (where the court trustee tries to claw back any payments the liquidated party made 90 days prior to the filing.) [see Count to 90 Before You Count Your Money by Len Spagnola].

Increasingly overburdened business owners have to keep track of more details that can affect their companies. There are some things you do have control over – your own bottom line.

“Increase sales, cut back on expenses” is the only mantra that keeps the ship steady in uncharted waters.

To avoid “going underwater,” everything must be designed toward maintaining a positive cash flow. Use credit availability to break up large expenditures. Make hard decisions quickly without lingering over the emotional aspect of the fallout – waiting only complicates issues and draws more attention.

Knowing what is going on with your lender is a new problem to deal with. If it’s a bank and it’s floundering it could potentially lead to being enveloped into another bank. This means that your loan will be examined with all new criteria and could be tossed out in the process of the new bank acquiring the old loans. Many small businesses are often shocked to discover that they no longer have credit with their bank, then left struggling to find a new source of capital.

The old motto “be prepared” fits here. Start planning today for events that can turn sour tomorrow. Small business owners often feel intimated about asking pointed questions to bankers and big customers – don’t be, your future is at stake. Knowledge is the antidote to risk.

Gary Honig is the President of Creative Capital Associates, a nationwide source of working capital since 1997. Find Gary at http://www.ccassociates.com or @garyhonig on Twitter.

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