Cash Is King And Debt Is The Assassin

In case you have not been reading the newspapers or my blog I will restate the obvious:

1. Our credit markets have been severely damaged and just because the government is willing to spend 700 billion dollars to prop up the banks does not mean credit is going to get that much easier to obtain. The issue is more complicated than just evaluating our own creditworthiness. Banks are no longer lending to one another because so many banks are on the watch list and will eventually be liquidated so banks are reluctant to lend to each other. This further stifles the credit market because there will not be adequate cash available to loan out to viable creditworthy businesses.

2. Liquidity issues for the banks abound because of the negative effect of the sub-prime losses, causing additional barriers to lending to creditworthy borrowers.

3. Unemployment will begin to rise rapidly and as more and more people lose their jobs, the economy will shrink making credit more and more difficult to acquire.

4. The ripple effect will penetrate every area of our economy as the building trades are down, the auto business is hard hit by lack of credit availability and this tends to affect every imaginable aspect of our economy. This Christmas season will be a bad one for the retail market and that will reach to the manufacturers and on we go. Lest we forget the fuel crisis and the cost of heating fuel this winter, we are in for a rough and tumble time where credit will be scarce even for those who deserve it.

The point is, cash is the the only answer to business survival and success in this time of economic turbulence. Those with cash may be able to make sizable advances and stay in business. Those without cash will be hard pressed to remain viable as without credit, doing business will be very, very difficult.

Turn your inventory into cash and collect your receivables. Be very careful about who you give credit to and work with your suppliers to design credit programs from them. They will also will be hurting but will want to do business so it may be a more likely source of trade credit than you may think. Tighten up on your terms with your clients but be creative so you do not drive business away.

The other 800 lb. gorilla in your office is your debt. This must be reduced or eliminated if possible and it is possible. I call it preemptive workout. Do it while you still may have some cash to work with. You must design a plan that rids you of your debt but keeps your core business afloat. Difficult, but we do this all the time. You cannot control the credit situation but you can have significant impact on your debt obligations. Reducing debt is like finding money, it is the flip side of the same coin – liquidity.

Remember, we are going through some serious changes that will last for many years. You must prepare yourself or you will lose everything you have worked so hard to create and build. Failure to act now may result in losses that could be insurmountable.

Cash is king – no, make that the Supreme Emperor – and debt is the assassin. Both need attention to survive  in this economy.

Call me to review your business and I will make the recommendations necessary to assure your survival.