Mistakes to avoid when the going gets good

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With some industries experiencing a resurgence of profitability, it is an opportune time for business proprietors to take stock and work out what is best to do, or not to do, when profits start to appear.

We all know the economy works through economic cycles. Just as night follows day, we know that periods of profitable trading will be followed by periods of difficult trading. The challenge for business proprietors is to enjoy the good times but not loose sight of the inevitable tougher times. The important strategy to be followed is to use the profitable times to position their businesses in the best way to ride out the lean times when they eventually arrive.

Our advice to business proprietors is to do the following:

1. Reduce debt

2. Invest in any necessary capital improvements

3. Invest in developing business strategies that increase market share and improve goodwill

4. Provide for tax

5. Avoid making financial commitments on the strength of current performance

What Not to Do

1. Take excessive drawings

2. Borrow excessively on the assumption that cash flow will remain strong

3. Invest in luxuries

4. Enter inflexible tax minimization arrangements

5. Invest in speculative but high return investments

Business managers should remind clients that their real wealth will come from managing, owning and selling at the right time a business that has strong fundamentals and a track records of success. Owners must keep in mind that real wealth will be generated for them if their business has provided to them consistent, reliable and regular profits.

Members with queries are invited to contact Peter Macks of Macks Advisory on 08 8231 3323 or email to pmacks@macksadvisory.com.au.