Why Every Business Needs a Plan B
The idea of having a Plan B has become widely spread. It’s particularly linked to the don’t drink and drive ads.
I recently got almost caught out without a Plan B when I was driving from Melbourne to Canberra. I was 200 km from Melbourne on the highway, and a red alert sign started flashing brightly on my dashboard.
Now, I will readily admit that what goes on under the hood of my car is a mystery to me. In fact, when I pulled over at the next service station, I spent five minutes trying to figure out where the latch was to pop the hood.
I originally thought it was the oil light, but on checking the dip stick, I had plenty of oil. I got back in my car and turned it on. This time it told me in words. Coolant needs refilling. The service station attendant sent me up the road to the mechanic shop where he took a quick look at my car, told me I had a leak and filled up the coolant bottle.
He then suggested I drive 30 minutes up the road to a bigger town where there were plenty of mechanics and check the level again there. There would be options for a mechanic who would be able to put the car up on a hoist to check it out.
I didn’t think to ask for some spare coolant in case I didn’t make it to the next town and so I spent an anxious 30 minutes driving along worried about what might happen.
I didn’t have a Plan B.
This lack of a Plan B is similar to what I see far too often in business particularly with cash flow. There’s no back up plan, no Plan B.
Take the stress off your shoulders.
Ideally, you should have three to six months of regular payments in your bank account at all times.
Now that may seem a tall order but think about how you’d feel if you knew you had that kind of buffer in your bank account. You wouldn’t be stressed and worried about how you were going to pay the bills.
It would feel as though the weight of the world had been lifted from your shoulders and you’d be relaxed and able to focus on the work at hand and have time to think strategically about the business too.
Even one month of costs would be better than most and a good starting point and will take a level of stress and worry off your shoulders.
The challenge is that small businesses and some medium businesses too tend not to have sufficient cash resources readily available to tide them over the tough times.
Traditionally December and January will be poor income months and difficult to get clients and customers to pay their invoices as well. But April with three public holidays in it this year together with school holidays may also see a poor income month. And then we have an election too which will impact some industries more than others.
Too often I see businesses suffer around election time for no apparent or obvious reason except that there’s an election. It’s almost as if people stop spending money, stop buying, and stop paying just because there’s an election.
If you don’t have surplus cash in your bank account or you don’t have access to funds already in place, what’s your Plan B for business?
Forecast your cash flow.
The key is to know what your monthly costs are, start squirrelling money away into a savings account and continue to chase payment for your invoices. Work on forecasting your cash flow for the upcoming few months and beyond to identify any cash shortages, when they might occur and how big a shortage it is. Then look to put in place your Plan B for business.
Seek out alternative funding, talk to suppliers about payment terms, change the payment terms for new clients or customers so that you get payments up-front and if need be, get out there and hustle to sell more.
As the old saying goes “make hay while the sun shines” so too, you should be doing as much business as you can in your good months, put money aside for the lower income months and make sure that you have a good buffer of money in the bank and create your Plan B for business.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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