Heed the lessons from the past

Prudent business managers should heed the words of a former Treasurer when he said "The world economy is still a very uncertain place" and "we fool ourselves to think our problems are now all over." As we now know, they are not.

It is less than a decade ago from a time when Australian businesses were reeling with declining sales and high interest rates and in this current climate Macks Advisory would encourage business managers to consider what went wrong in the past so that their companies can survive in the future uncertain times.

The typical traits of businesses that fail early on in an economic downturn are that the company has made an over-investment in inventory and the managers of the business have failed to watch closely their businesses cash cycles in order to predict their businesses problems.

Monitoring the cash cycle involves a continuing and close assessment and prediction of cash receipts and matching those receipts to the businesses cash demands. If this assessment shows that your aged accounts payable is averaging 45 to 60 days then prompt action is necessary to avoid this situation becoming terminal for the business.

In these situations the management rules must be not to delay paying tax debts and other interest bearing debts and to start negotiating with key suppliers for extended trading terms. These rules will help with the outcome of the problem but management must then promptly address the cause of the problem which is often inventory and hence, sales related.

Macks Advisory is a firm that practices exclusively in the areas of insolvency and business reconstruction and members with queries are invited to contact Peter Macks of Macks Advisory on 08 8231 3323 or by emailing pmacks@macksadvisory.com.au.