Is the sky really falling?
Business confidence and consumer confidence have fallen to recession levels, and more bad news piles up every day. But are things really that bad? Matthew Nolan cuts through the hype and gives you some tips on identifying the real effects (if any) on your fashion business.
Over-hyped news of the downturn is everywhere, making it hard to get perspective on whether your fashion business is being seriously affected and needs to make changes.
The good news is that there are early warning signs in your business to watch out for. These will let you know if it's time to take immediate action and what areas to focus on.
The extent to which you need to take action must be tailored to how your business is actually performing, so don't rely on the newspaper's dire predictions. If there are multiple early warning signs, it's undoubtedly time to take immediate corrective action and potentially seek external assistance.
Here's what to look for:
Falling sales: If sales are reducing substantially more than seasonal variations and current industry trends indicate they should, it may be an early warning sign that the sales function of your business requires immediate attention to stem the decline before it becomes more significant. You can find comparative data for the fashion industry free from the Australian Bureau of Statistics and some industry groups.
Paying bills: If the amount of unpaid creditors is rapidly increasing because there's insufficient cash to pay them, it's time to look into why cash is not coming into your fashion business as fast as its being spent. This will allow you to make the necessary adjustments to stem the tide and arrange to pay creditors off over time when needed.
Supplier relationships: If suppliers are cutting off credit to your company because of concerns about the business or slow payments, you could be forced to change to COD trading terms that will significantly impact cashflow. If any supplier makes this request, be sure it's quickly addressed before word spreads across other suppliers to your business.
Demand letters: Is your business receiving threatening letters and calls from collections agents, banks and solicitors? Don't ignore them, if not acted upon quickly these can escalate to court action and serious damage to credit ratings which may quickly result in your business being forced to close.
Incomplete financial records: Are you so busy putting out fires in your fashion business that completing financial records, such as monthly accounts, is the last thing on your mind? If so, remember that it's impossible to manage your company and make the necessary changes if you don't know vital numbers such as sales, available working capital and creditors.
Debtor problems: Payments from customers of non-retailers are ty
Rushing for the exit: A downturn adds stress in any business, but if there are sudden resignations amongst directors or senior management personnel, it's time to take additional steps to retain the remaining key members of your team. Think of it from their perspective and try to provide realistic assurances regarding the future of the business and your vision for it. Remember to keep up staff development and find innovative ways to incentivise them that don't involve cash - giving someone a long weekend could go a long way towards keeping them content.
Dependence on a "big" sale or contract: Is your business relying on securing that next big sale or contact to survive? If so, this is a potentially dangerous early warning sign, as current market conditions mean many big sales and contracts are being put on hold. This is potentially compounded by competitors that may be willing to undercut prices in order to maintain volumes.
Tax and superannuation: Overdue tax and superannuation payments are a common early sign of financial distress. Whilst the tax office is often used by many businesses to provide an "informal" overdraft, the ATO won't hesitate to lodge a petition to wind up your business if stretched too far. On the other hand, overdue superannuation payments can quickly find a business in breach of their employee obligations.
Additional finance: If internal sources of capital have been exhausted and additional external finance must be secured to enable your business to continue trading, it highlights a potential problem. Securing additional finance in the current market won't be as easy as usual, meaning alternate plans may need to be devised that don't rely on this additional capital being secured. Make sure you consider financiers outside traditional banks that may be more flexible in their lending criteria.
If the above early warning signs are noticed and acted upon promptly, they can often be resolved - meaning the sky won't fall down on your fashion business. Don't be afraid to ask for help from your accountant or trusted business advisor if you need it.