Like elite athletes, successful entrepreneurs are always up for challenges. It doesn’t matter what economic situations they face, elite entrepreneurs are constantly finding ways to improve. Great managers achieve steady success regardless of occasional setbacks.
It’s a relentless commitment to excellence that enables them to meet and exceed their goals. That and realizing that numbers are critical management tools.
While attention to customer service and marketing are important in tough economic conditions, it’s financial actions that help entrepreneurs remain competitive.
Here are four actions to give you that edge.
Customer payments: Maintain a system that reveals aging of your accounts receivable. Ask your accountant to measure the average balance relative to sales. When you see this figure creeping up, your customers are waiting longer to pay.
Allowing customers to pay several days after a purchase is a privilege you offer, not a buyer’s right. You have the right to expect prompt payment, and the regular customers with whom you’ve established valued relationships will understand.
Of course you can afford to be lenient with customers who keep their word and are honest about temporary cash shortages. But you may want to change transaction terms – even requiring payment at the time of sale – for those customers who consistently let you down when it comes to payment.
Vendor priority: Just as you expect prompt payment from customers, your vendors expect the same. But not all vendors are equal. Remitting payroll taxes, for example, is critical and should be a top priority. Paying your rent should also be a priority, more so even than paying your banker, who is often willing to resolve issues and avoid collateral repossessions.
Keep an accounting of amounts owed to each vendor. If the numbers creep upward relative to sales, it is essential to prioritize vendors. Be proactive. Contact vendors and ask for extra time to remit payments. Always pay the highest-priority bills first and describe your circumstances honestly to every vendor.
Inventory balance: Holding too much inventory relative to sales is a recipe for disaster, and a successful business sells its inventory promptly. The basic procedure of measuring your inventory turnover must be conducted often. Your accountant can show you the equation, which uses numbers readily available from your bookkeeping system.
Don’t be afraid of discounting stale inventory. Too many businesses don’t hold enough cash during a downturn in sales and unloading old items from inventory helps you to weather a slump. In fact, the cash you raise through liquidating your stale inventory allows you to accumulate new inventory at low prices.
Experiment: Top-quality business owners always have an eye to the future. They improve upon what they do well and discard mistakes. They experiment and measure the results.
For example, you can enhance sales with free installations or by offering extended warranties. Create customer loyalty clubs or invest in training your sales team. Most important, you could schedule regular meetings with your accountants to review company bookkeeping and evaluate overall your financial condition.