Money, Money, Money - It's a Prudent (Business) Man's World

I recently had a very interesting week:

• On the Monday I found myself in the Post Office handing over a very large cheque to pay my annual tax bill. Paying out so much money would normally be enough to make a grown man (me) cry, but to be honest I had a smile on my face. Why? Simple really - I knew that I'd been saving the money from my earnings during the year and so I had plenty of money in my business account to cover the payment.
• On the Tuesday I had a meeting with a client who owns a large kitchen and bathroom supplies company. As we discussed the economic climate, he was very upbeat. Not only did his company have enough money in the bank to carry them through at least the next 12 months, but also a local bedroom furniture company had recently gone out of business, so he had taken on some of their staff and had expanded into supplying bedroom furniture.
• Later in the week, I watched a TV programme discussing the effect of the credit crunch on the car industry. The big message was that, if you are in the market for a new car, there has never been a better time to head to the showrooms. Looking for that dream Lexus? You can virtually ask them to pay you to take it off your hands! In fact one car company (Mazda) is even offering a 'buy-one-get-one-free' deal on new models!

So what do these 3 unrelated incidents teach us about business? For me, 2 messages stand out quite clearly:

Lesson 1:

Firstly, a return one of my favourite themes: I love the old adage, "sales are vanity, profit is sanity, cash is reality". It doesn't matter how many sales a business makes if it's not making a profit on those sales. And that profit needs to be turned into cash in the bank - enough to always be able to pay the bills when they arise (like my tax bill). Maintaining a good cashflow is essential for long-term business success and is even more important in these difficult times. As my client company demonstrated, if you have enough cash available, you have a wonderful safety blanket in place.

This is a basic truism - when Joseph interpreted Pharaoh's dream and advised him to store grain during the seven years of plenty, in readiness for the seven years of famine, he was teaching a fundamental business lesson. The problem is that many businesses (large and small) fail to learn this lesson, with the result that in 'times of famine' (aka credit crunch/recession/economic downturn) they suffer commercial 'starvation'.

Lesson 2:

The second lesson is even more pertinent to the economic crisis we are now experiencing; and it's simply that times of crisis always present excellent opportunities - especially for those who have heeded Lesson 1!

All the news at the moment is about failing businesses, but - as my client company demonstrated - every business failure presents an opportunity for other businesses to fill the void left behind. Customers of failed businesses don't just evaporate into thin air, they have to find another supplier.

And don't forget what happened to Joseph and the Pharaoh; during the seven years of famine, Egypt increased its wealth by selling some of the stored grain to the starving citizens of neighbouring countries.

Also, as any car buyer will now find out, troubled times may mean that you can drive down costs by negotiating with suppliers who are desperate for your business. And for a business, saving money in this way might be the difference between having to make redundancies and saving jobs; or it might even be the thing that ultimately saves the business from failure.

Take care of the cash in your business during the good times and it will look after your business during the bad times...

Michael Barrows is a business consultant, providing business consultancy services in Birmingham. Get some great advice on how you can improve your business, including managing business finances, by going to the Matrix Marketing & Management website.