Why your business needs a succession plan
August 18, 2010
THERE’S AN ELEPHANT IN THE ROOM THAT NO -ONE’S TALKING ABOUT
The average man now lives until age 78 and women live an average 83 years*. About half of all Australians aged over 30 can, at some time, expect to get sick or injured to the point that they can no longer run their businesses.
Planning for the future is put in the too-hard basket by many business owners caught up in the day-to-day running of the business. What little time they do have to work on the business (rather than in it) is spent drumming up ways to generate higher profits, manage cash flow and reach new customers.
It is important to look ahead, think and plan about the future. So crucial is succession planning to the future that highly successful entrepreneurs start working on a succession plan the first day of business (if not earlier).
Whether you’ve brought a business or started one from scratch, what you plan to do with the business and when should be thought about and documented. Do you want to sell the business, or is it your retirement fund ? Do you want to hand it down as a family business? As a business owner don’t you owe yourself , your dream and the people associated with your business the respect to have a plan in place that tells staff, family members or partners what to do if you can no longer come to work due to death, accident or illness.
Every activity undertaken in your business should be clearly documented so anyone reading it knows exactly what they should be doing to ensure the business carries on as usual. This means customers can expect the same impressive experience they’re used to, profits aren’t likely to dip, and anyone associated with the business can carry on as normal with the same level of trust they have always had.
94% of small business owners don’t have a documented succession plan at all.
Source: Cameron Research Group, The Australian Small Business Market for Financial Services: 2006
If you make the effort now you will become part of a such small minority of business owners that you cannot imagine the competitive advantage at sale or handover time. When my husband and I sold our business earlier this year our ability to attract a quality well priced offer in under three weeks had a lot to do with the fact that we had systemised the business so that anyone could sit in the ‘chair’.
Succession plans are also vital if you plan to rely on the ongoing income from the business to fund your retirement. A solid plan means very proficient management of the business going forward and you can rest assured that any family members who rely on income generated by the business will be well looked after.
A good succession plan will minimise the disruption to the business while a new leader takes over, regardless of the circumstances. It will also drastically reduce the stress on family members and staff – your position is filled in an orderly, efficient manner with no surprises. A drama-free succession which ensures there is little impact on operations or profits will also serve to maximise the value of the business - creditors in particular like to know their investment is well managed.
Whether you plan to sell all or part of your business or hand it on, a succession plan enables you to work towards implementing and refining systems and processes to the point that the business can run just as well without you as it did with you.
*Australian Institute of Health and Welfare
MORE GREAT BLOG POSTS BY JULIE WISE
- Grab a coffee, take time to pause and reflect on FY10 – 01 July 2010
- Unleash The Plan In Your Head
- Customer Service Tip #1 – Hug your customers!
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Julie Wise - The SilverOwl
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| Email: | julie@thesilverowl.com.au |
| Website: | www.thesilverowl.com.au |
| Twitter: | www.twitter.com/julie_wise |
| LinkedIn: | au.linkedin.com/in/juliewise |
| Member Profile: | See Julie’s Member Profile |
What Every Business Plan Should Have (But Most are Missing)
July 23, 2010
By Cat Matson, Alito
I am often asked why business owners have a business plan. Why spend time planning rather than ‘just getting on with the business?’ My answer is simple …
“So you know where you’re going, and you know how you’re going to get there.”
But I’m also a big one for creating a plan that works for you. The planning process I swear by may not suit your personality type or your business context. So rather than get ‘caught-up’ in the right ‘format’ of a business plan, today I want to outline the key elements of the business plan.
1. The Business Model – how do we actually make money?
Obvious? Maybe, but I so often see business owners struggling to make money, simply because they never clarified how they are going to make it. They focus on ‘doing their thing’, but forget that somewhere along the line they need to get paid.
The business model conversation is bigger than just ‘selling x-product or y-service’. The business model is how you reach your market, convince them you’re worth talking to and ultimately why they should buy your wares. It’s about exchange – what do you receive in exchange for what you give? This is also bigger than the ‘marketing function’ of the business, which is where most people put their focus. This business-model conversation is actually about brand, strategy & operations combined in a synergistic, leveraged flow. It is the exploring, designing & building the business model that helps you discover the viability of your business.
2. Realistic Action Plans – what are we going to do in the immediate future to get closer to our targets?
3. A context-check, or what I call ‘life-sandbox’, is extremely important for solo & micro business owners, but is often missed.
This life-sandbox is the reality of your life into which your business fits & exists. Most planning processes address the business in isolation to the owners’ lives, so we set lofty goals that are incongruent with our life-reality.
4. Finally, a visible, meaningful scoreboard.
It would be incredibly boring to watch a game of football if you didn’t know the score, yet business owners do this all the time. Many business owners only look to the financial scorecard. That’s not always enough. Your business plan needs to drive the scoreboard, which in turn drives performance.
In terms of format, I’ve been using different ‘one-page-plan’ formats for years and am a big advocate for keeping things simple. However, there are times when a more traditional format is valuable. It’s your call. Just make sure you have some kind of plan in place and that the essential ‘inclusions’ are covered. A business plan that doesn’t address the essentials is a waste of time.
MORE GREAT POSTS BY CAT MATSON
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Cat Matson - Alito
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| Phone: | 07 3289 7055 |
| Email: | cat@alito.com.au |
| Website: | www.alito.com.au |
| Twitter: | www.twitter.com/catmatson |
| Facebook: | www.facebook.com/AlitoFusion |
| LinkedIn: | www.linkedin.com/in/CatMatson |
| Blog: | www.alito.com.au/blog |
| Member Profile: | See Cat’s Member Profile |
Six Characteristics of Success-oriented Small Business Owners
July 14, 2010
By Susan McGrath
Are you highly motivated, caring and curious? If so, you are part of a special breed of success-oriented small business owners, according to Mark D Wolf, director of the New York based Guardian Life Small Business Research Institute.
And if you effectively balance your personal and business goals, take advantage of others’ expertise and continually seek to learn the best practices exhibited by peer companies, you are even more likely to achieve business success.
The Guardian Institute surveyed owners of over 1,100 small business owners in its recent study “The Guardian Life Index.” It identified six dimensions of owners who projected revenue increases and business expansion, even as the recession peaked in the US.
According to the study, success-oriented small business owners are:
- Collaborative – they are able to build strong personal relationships, delegate effectively and are committed to creating opportunities for others.
- Self-fulfilled – they place a high value on the personal fulfillment and gratification that they gain from their business.
- Future-focused – they plan for both the short and long-term future and are focused on cash flow.
- Curious – they are open to learning how others run their business and actively seek best practice insights regarding management, business innovation, prospecting and employee attraction, motivation and retention.
- Tech-savvy – technology is a key point of leverage for success-oriented small business owners. They intensively value their company’s website and are significantly more likely to rely on technology for business effectiveness and efficiency.
- Action oriented – success-oriented small business owners are more proactive in taking initiative to build their business. They are more committed than others to taking their business to the next level, differentiating themselves from their competitors and having an exit strategy. They also see adversity as a means to help them move forward.
According to Patricia Green, PhD, the special academic advisor to the Guardian Institute, successful SME owners are lifelong learners, and the most valuable point of the six dimensions is that they can all be learned.
More information about the characteristics of successful small business owners is available from the Guardian Life Small Business Research Institute.
MORE GREAT POSTS BY SUSAN MCGRATH:
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Susan Wareham McGrath - McGrath Career Management
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| Email: | susan@susanwareham.com |
| Website: | www.susanwareham.com |
| Twitter: | www.twitter.com/Susan_McGrath |
| Blog: | www.susanwareham.com |
| LinkedIn: | au.linkedin.com/in/susanwmcgrath |
| Member Profile: | See Susan’s Member Profile |
Unleash The Plan In Your Head
May 31, 2010
By Julie Wise, The SilverOwl
Often my clients tell me they simply cannot get started on their business plan. Their minds go blank at the site of a new piece of paper. When you need to write or update your business plan a good technique to try is brainstorming. When you brainstorm, you record as many of your thoughts as possible without taking time to evaluate or judge each individual idea. Often the ideas are extremely creative, unusual, or even bizarre. And yes often a realistic solution or idea will emerge.
Everyone talks about brainstorming and how simple it is. In my experience though, very few people understand the environment in which to do it or the techniques of how to brainstorm.
So here’s the method and technique I’ve used over the years and I coach my clients in. You do need to follow some simple rules to make sure you get the best results.
Brainstorming is not difficult to do – it can be done in groups or by yourself. The approach I’m sharing here is brainstorming by yourself.
The Environment, Tools and the Clock
- Find a location conducive to you and your brain. It should a place free of distractions where you can focus and think. Eliminate EVERY possible interruption – YES that means mobile phones. If you need music and that’s on your mobile phone switch the phone side OFF. If you can’t then borrow a music player from somewhere else.
- Allow for a quiet environment. Sometimes music will help put you in a certain mood. Change the lighting in the room if that is helpful to you. Do whatever you can with your environment to allow you to feel relaxed and open to ideas.
- Get your tools together. You will need
- 1 Brain
- 13 3 x 5 Sticky Notes
- 1 Pencil
- 1 Clock
- Record your thoughts and ideas in any way that make sense to you. You may choose to make a list of ideas, or to draw pictures or symbols with your coloured pens. Connect ideas with coloured lines. Draw boxes around major themes. Anything goes as long as it makes sense to you.
- Don’t worry about spelling, grammar, or style.
- You must follow the exact time limits.
- Speed is your friend. Work quickly to avoid the impulse to censor your ideas.
Okay let’s go!
The Storm
Time Limit: 45 minutes. Set your clock
On the first 10 post-it notes, write the following items!
- Sticky #1: Why are you doing this?
- Sticky #2: What are the top 3 market factors affecting your business? (economic conditions, new technology, location etc.)
- Sticky #3. Who are your top 3 competitors?
- Sticky #4: How are you going to beat them?
- Sticky #5: Why would anybody buy this?
- Sticky #6: Why would they buy it from you?
- Sticky #7: How are you going to sell it?
- Sticky #8: How are you going to get the word out?
- Sticky #9: What will success look like in a year?
- Sticky #10: What are your 3 goals for the next six months? (ONLY THREE)
When the clock reaches 45mins STOP! Don’t write a single ink drop more.
Take a 5 min break. Stand up. Walk around. Get a drink.
Try not to think about what just happened because you want a fresh perspective. Don’t think about budgets and allocations – that comes later. If you set the budget first, or analyse anything you will have already forced yourself into boxes and restrained your focus and thinking.
After your break look at each sticky note. Do they make sense individually AND collectively?
The Plan
Time Limit: 10 minutes. Set your clock.
Supplies Needed:
- 1 Same Brain
- 3 3 x 5 sticky notes
- 1 Pencil
- 1 Clock
Now on your last 3 post-it notes:-
- Sticky #11: List 3 (only 3) actions you will complete in 30 days towards your goals
- Sticky #12: List 3 actions you will complete in 60 days towards your goals
- Sticky #13. List 3 actions you will complete in 90 days towards your goals
If you have business partners or employees put one name on each of the actions.
Time is UP ! Pencils Down!
Do the action steps make sense?
Do the 13 post-it notes excite you? Can you do it? Will you do it?
Yes – great you’re done. Go Out and Conquer!
No ? – Walk away for at least two hours. Then get 13 new post-it notes and repeat the whole process.
If you are still stuck, you might try brainstorming with a trusted advisor or a business-coach. They are not emotionally tied to your business and therefore will have a different perspective to you and they will provide ideas that you cannot immediately see but you can build on.
Once you discover how easy and beneficial brainstorming is you will be on your way to new and creative ideas! You won’t be able to hold yourself back!
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Julie Wise - The SilverOwl
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| Email: | julie@thesilverowl.com.au |
| Website: | www.thesilverowl.com.au |
| Twitter: | www.twitter.com/julie_wise |
| LinkedIn: | au.linkedin.com/in/juliewise |
| Member Profile: | See Julie’s Member Profile |
5 Twitter Tips for Entrepreneurs
March 15, 2010
By Yvette Vignando, www.happychild.com.au
Leading up to the launch of a new site, I’m researching everything about the power of social media. Before I catapulted myself into the Twitterverse, I confess I cynically suspected it would be full of people updating me about their breakfast, their political views or be a series of automated marketing pitches.
Well, I was right, and it’s actually fantastic. The power of Twitter is that you can authentically and personably connect with people on the same wavelength. And I love that it’s a platform with fast, 140 character, very digestible pieces of information.
As I get to know people personally, including their breakfast menu, I get a sense of how I can help them and actually build a community of ‘real Tweeple’. Those tweeple might be interested in what I have to say, or have information that is helpful for my own personal and professional growth. Even though I’m not a fan of automated tweeting, I still appreciate the efficient sharing of information by the rich source of tweeple I have met during my 140 character visits to the Twitterverse. And I firmly believe that the quality of your Twitter followers is the key, not the quantity.
5 Twitter Lessons I’ve learnt:
Give to Get
Like most venues in life, on Twitter you need to give to receive value. This means:
- Tweet personable information about yourself that is relevant or has synergy for some of your followers. You can keep this non-identifying but still real. For example @SuziDafnis discloses with a picture that she has a penchant for terrifyingly high heels “Just said no to temptation… I can always change my mind. http://twitpic.com/178vfu”
- Tweet links to interesting blogs and news articles. They don’t need to be all your own.
- Re-tweet the tweets you find funny, useful or informative.
- Keep your self-serving links to a minimum but share the ones you are proud of such as your latest blogpost, or in my case recently: “A link to my 5min pres on why there needs to be more emotional intelligence in school http://bit.ly/b6aTzI #ignite”
Read the #FFs With Interest
On Twitter, #FF stands for Follow (on) Friday. Tweeters post Twitter identities of people they think are worth following. Usually this means they’ll be people of interest to you too. Click on their profiles, read their short description and latest tweets and if you’re interested, follow them.
The power of Twitter is that you can authentically and personably connect with people on the same wavelength.
Re-Edit Your Short Profile
The short profile, limited to 160 characters is what people read when thinking about following you. I’ve amended mine many times and I confess it’s still a work in progress. Be informative, personal and disclose your personal style. If you have feedback on mine, I would really appreciate it. Currently it’s “Publish Parenting Info- Raising Children with Emotional Intelligence. A happy child makes a world of difference. Mum of 3 boys. No, they’re not always happy.” What do you think?
The Best Camera is the One You Have With You
I have totally stolen this line from Andrew Harvey at Ignite – the least I can do is share a link to his presentation. Tweeters develop their online brand by taking a quick photo with their mobile phone. This ranges from a sunrise to a pet rabbit or in @SuziDafnis’ case, a dangerous set of heels! A service you can use for this is Twitpic.
Use a Browser to Avoid Twitter Overload
Twitter can suck you in. If you want to scan through the important stuff quickly, download a Twitter browser to manage your lists of Tweeters. I use Tweetdeck but there are many others. Here are a few to check out: UberTwitter, HootSuite and Seesmic.
Hope that’s useful to you – I’m loving the learning that comes with my entrepreneur’s journey – see you out there in the Twitterverse.
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Yvette Vignando - www.happychild.com.auYvette is pursuing her passion – to take action that helps children develop great social and emotional skills as a foundation for a happy and successful life. Formerly a lawyer and then successful executive coach specialising in Emotional Intelligence, Yvette was encouraged by her experience of MentorNet to launch her business – a website for parents that publishes practical and engaging information about raising children with emotional intelligence. Yvette looks forward to sharing the challenges and successes of her experience as she navigates her way through the adventures of launching a website, and tackles online sales and marketing, an evolving business plan, and the growing universe of social media. Yvette hopes that by following her personal and professional development as an entrepreneur you will also be inspired to follow your passions.
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The Power of Symbols for your Brand
March 10, 2010
By Cheryl Hayman, Hayman Strategy
How often do we sit and think about how symbols, pictures and taglines affect our brand? Conversely how aware are we of the effect on us of our favourite brands’ symbols and other visual identity references?
Are you a visual person, and does it matter?
From teenagers wearing Gap and Nike brand logos to adults driving BMWs, we are drawn to incorporate brands into lives. We all draw our personality and self-image from products such as cars, homes, clothing and even recreational activities, and products always have brand logos or symbols of some kind that represent them.
By accident or Design?
Nike probably got the best deal amongst all companies when Caroline Davidson designed its logo for just $35 in 1971. The main part of the logo hasn’t really changed with time. However it was 7 years before they realized that the text and the swoosh were overlapping each other.
As the brand gained recognition, the company name was dropped from the logo, which made it more simplistic and memorable. The company has different variations of this logo for its various departments like Skate, Soccer etc.
Creating a Visual Signature
One of the first steps in creating an identity for an organisation is the development of an effective logo. An appealing logo makes your business special and memorable in the eyes of your clients or customers.
Each element adds unique characteristics to a logo.
It is important to remember that your logo is not your brand. It is just one part of the entire brand implementation process.
Keep it simple.
An appealing logo makes your business special and memorable in the eyes of your clients or customers.
The simpler a logo is the more it is, the more cost effective it is to reproduce. Your logo needs to remain consistent in color, font and proportion where ever it is used.
A brand comprises many elements. These include its name, positioning (reason for being), trademark/trade dress (symbols, colors, typestyle, package configuration), and brand communications. These brand elements, when successfully developed and managed, create a strong identity for a company. Over time, this creates strong brand authority.
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Cheryl Hayman - Hayman Strategy
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| Phone: | 0408 200 545 or 02 9555 5776 |
| Website: | www.haymanstrategy.com |
| Email: | cheryl@haymanstrategy.com |
| Twitter: | www.twitter.com/cherylhayman |
| Facebook: | www.facebook.com/cheryl.hayman |
| LinkedIn: | See Cheryl’s Public Profile |
| Member Profile: | See Cheryl’s Member Profile |
2010 will be a Very, Very Good Year for Entrepreneurs
February 15, 2010
By Yvette Vignando, www.happychild.com.au
I have good news for me and for you. Phil Ruthven who has spent decades charting the growth and change in Australian business says that 2010 is going to be a “very, very good year for entrepreneurs, no question.” Fantastic!
2010 is the year that I’m launching my online business www.happychild.com.au, a website for parents about raising children with emotional intelligence. I’m excited, a little apprehensive, impatient to get started, mad keen to succeed and loving all the learning and challenge that comes with starting a new business.
In each blog post, I’ll share with you information, tips, books and websites that are helping me on my entrepreneur’s journey. Please do the same; I’d love to hear your ideas too. ABN Startup and Growth Members: I bet you’ve got so much to share and the ABN is a wonderful supportive community in which to do this.
2010 is going to be a “very, very good year for entrepreneurs, no question.”
Surround Yourself with Honest Believers
As I’ve had a few hiccups along the way, including a website that never got launched, I’ve found it’s crucial to be surrounded by people who believe in me and my business idea. Even though I’m convinced that my business will be fabulous, it’s so valuable to have the constant encouragement and feedback of friends, family and mentors to keep me going when things inevitably go wrong. These ‘believers’ as I call them, have been honest and generous in also pointing out where I may need to rethink my plans, and have helped me solve numerous challenges over the past year. An example of a great source of this support has been my pod member from MentorNet, Alycia Edgar. Make time for lunches, coffees and phone calls with your ‘believers’, and don’t forget to let them know how important they are to your success.
Read Widely
If you’re like me, you love good books about developing your business and books that inspire you to keep working towards your goals. There are so many great books; here are three I’ve been reading lately:
- Crush It by Gary Vaynerchuk – about building your personal brand, and in particular doing it using social media. It’s a high energy book, informative, engaging and motivating.
- You Tube for Business by Michael Miller – plenty of practical detail about how to leverage online video to market your business.
- Getting Things Done by David Allen – systems to use if you want to be more organised and more productive in your day and in your office.
And just a reminder, Phil Ruthven from IBIS World says “the conditions are never going to be better… if you wanted to start a business from scratch” – I’m definitely a believer in that!
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Yvette Vignando - www.happychild.com.auYvette is pursuing her passion – to take action that helps children develop great social and emotional skills as a foundation for a happy and successful life. Formerly a lawyer and then successful executive coach specialising in Emotional Intelligence, Yvette was encouraged by her experience of MentorNet to launch her business – a website for parents that publishes practical and engaging information about raising children with emotional intelligence. Yvette looks forward to sharing the challenges and successes of her experience as she navigates her way through the adventures of launching a website, and tackles online sales and marketing, an evolving business plan, and the growing universe of social media. Yvette hopes that by following her personal and professional development as an entrepreneur you will also be inspired to follow your passions.
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What You Should Look For In A Bookkeeper – It’s Not Just About Skill Set!
February 5, 2010
By Alycia Edgar, Coastal Accounting Services
Have you resolved to improve the management of your business this year? Perhaps you’ve realised that you can’t be responsible for everything? Bookkeeping is often one of the first tasks that business owners outsource. Unless you’re a bookkeeper, it’s most probably something that nags at the back of your head all the time, stopping you from focusing on what you do best. However, outsourcing your bookkeeping can be a scary idea. Handing over your finances to someone else requires trust: trust in the individual and their processes.
Ultimately a bookkeeper should be part of your team, someone who can do your bookwork but also understand your business enough so that what they do has an impact on the growth of the business as a whole. Obviously bookkeepers require certain qualifications and skills, but what are the personality traits that you should look for when hiring a bookkeeper? For me this is the most important question. Anyone can do most of the work at a basic level, after all you completed it yourself at some stage, but who can do it really well? Sure, the skill set is a must but what differentiates a basic bookkeeper from a bookkeeper that is an integral member of your team?
Ideal traits of a brilliant bookkeeper
- Perfectionism
- Attention to detail
- Tidiness
- Willingness to follow up
- Caring nature
- Ability to prioritise
These traits ensure that:
- Statements are checked
- Stray invoices are investigated
- Files are kept in an orderly manner
- Payments are chased up
- Items are allocated to the correct accounts
- Unusual items are queried
- Paper is organised regularly
- Your bookwork is treated as if it was their own
- When cashflow management is required they can manage this for you
Why is this important? It can save you both time and money. If your bookkeeper can maintain your bookwork to the standards above, not only will you save time on chasing up queries but also money on your accounting fees. If they can manage your bookwork efficiently and methodically, your accountant will have a clearer picture of your business when completing your tax. And you’re not paying your accountant high hourly rates to do bookwork that your bookkeeper can manage.
So when choosing your bookkeeper, rather than just relying on skill set, determine whether you would prefer to have a team member that is an integral part of your business. Make sure to find out if they have the above personality traits. You could even talk to existing and past clients of theirs and get a feel for whether they would be the right fit for you. Once you’ve found a great bookkeeper, you’ll never look back!
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Alycia Edgar - Coastal Accounting Services
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| Phone: | 0403 983 529 |
| Email: | alycia@coastalaccounting.com.au |
| Twitter: | www.twitter.com/alyciaedgar |
| Blog: | www.numbersarelife.com |
| Member Profile: | See Alycia’s Member Profile |
It’s Your Money, Collect it!
February 1, 2010
by Julie Wise, The SilverOwl
Recently, I had a client tell me
‘your invoices are well laid out – especially your payment terms. Can you improve mine?’
Getting paid. Isn’t that the ultimate goal from each and every sale? It had better be, or you are in the wrong business!
Although there are no absolute guarantee, there are things you can do to reduce the incidence of non-paying clients. Don’t ignore creating and enforcing a sound payment policy.
In itself, a strong payment policy will not loose you good business. Good customers aren’t frightened off as they understand that as long as they pay on time the terms do not apply. So, don’t fall into the trap of believing that you need to offer relaxed payment options otherwise your customer will go elsewhere. The only thing you risk losing are clients that are not paying.
Some of your options may be limited because of your service or product but no business is prohibited from collecting their money in a reasonable time frame. The following list will help you formulate your company’s sound payment policy:
- Do you clearly explain payment terms to your customers before you start to work for them?
- Does your business lend itself to offering a discount for upfront payment vs. invoice in arrears billing?
- Does your business also lend itself to offering bonuses or discounts for purchase of prepaid credits?
- Do your customers sign a contract for your services?
- Does your contract clearly state payment terms, – including interest rate, late penalties and collection fees?
- Does your invoice clearly re-state these payment terms?
It's Your Money, Collect It! | Julie Wise
Do you order a credit report on new customers – especially those with large orders? You should! This is not difficult to do, can be done quickly and has saved many businesses. The reasons why are a blog topic by themselves. So we’ll do that another day.
The cost of using a solicitor, who writes plain english terms and conditions, to review your contracts and invoices will be recovered the first time you are faced with forcing a customer to pay.
Another big problem is that most businesses wait too long before attempting to collect their money. Two main reasons for this. Firstly, this is because most don’t have payment reports being produced daily. As a business owner its your obligation to know who has and who has not paid -bso ask your bookkeeper to setup a daily payment report of payments due that day and all overdue payments. It is not unreasonable to call your customer immediately they miss a promised payment. Or to even ring repeat offenders the morning a payment is due to remind them.
The second reason why we wait too long is because invariably the SME owner gets involved in the effort to collect funds from delinquent accounts. It is a role that most people find uncomfortable and unless you are trained in collections its unlikely that you are any good at it.
Unfortunately, waiting just makes it harder to collect. So once you have determined that you cannot collect your money, engage a professional debt collection agency to handle the debt and move on with running your business. Spend your time wisely!
Even if you have to pay 25% of the money to the collection agency, you are better off than holding onto the debt. An easy way to calculate whether the cost of a professional debt collector will be worthwhile is to use the following example and formula:
Example: - Your customer owes you $2000
- You hold on to a delinquent account hoping your customer will pay:
- You collect nothing,
- You pay nothing,
- 100% of nothing = $0.00
- You turn the debt over to a collection agency after making several calls and sending letters :
- The agency collects $2000.00,
- You pay 25%,
- 75% of $1000 = $1500.00
Obviously, you are better off with $1500 rather than nothing and financial worries.
Assuming that you have provided your services or product as agreed, your customer should have no qualms in paying you promptly under the terms of the sale. So clearly stated terms and careful credit analysis will be large factors in your ability to keep your business on a sound financial footing.
Don’t be afraid to collect when payments are due - it’s your money!
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Julie Wise - The SilverOwl
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Starting a business? Checklists, things to consider and more.
November 4, 2008
Considering starting a business? Before you get started there are some questions for you to consider. For example, find out if people are interested in buying your products and services. Who are your competitors and can the market sustain your business. The Australian Government has a great site with resources that you may find useful, including great templates that you can use right away. Learn More.
