Focus On The Right Goals
Back when I owned the BC/Vancouver Liquid Capital office, and again now as I meet with business owners, I have often found they are not focusing on the right things. I think most business owners recognize that one of their key goals is to have a pile of money, though it could be defined as:
- Enough food for the table next month
- A sweet retirement
- A solvent and growing business to hand to a child
- A desirable business that sells for a good earnings multiple
- Enough working capital to allow the growth that they know and see is possible
However, most business owners focus on getting the sale: “A PO should be here soon”, “We signed the contract!”, etc. There often isn’t enough focus on whether that “sale” ever turns into cash.
Sometimes there’s the “deer in the headlights” from “how on earth do we now provision that big sale?”, but I often come across businesses giving trade credit to a customer in quantities far beyond what is prudent based on professional credit adjudication. If it becomes a bad debt, then all you have left are a bunch of costs.
Depending on profit margins, it could take $2M in sales to make up for a $200K bad debt. That’s scary.
Professional credit assessment is an important business owner tool – one that’s not available unless you are working with a factoring company or searching for and retaining your own in-house staff if you’re big enough to justify that approach.