As 2009 draws to a close 2 days from now, we need to start focusing on the year ahead.
Here are my business finance priorities for 2010. They may be a bit different from business to business, but all should apply to any small or medium sized business that is operating as a going concern.
Priority #1. If you rely on external capital or investor capital to operate or grow your business, make sure that you spend time every quarter assessing your available sources of business financing in the market place. Regardless of what you’ve been hearing, the recession and its related effects are far from over. There are going to be more bank failures and more unpredictable lender policy shifts as everyone continues to ride out the storm in 2010. Even if you are in solid financial shape with your sources of capital, they themselves may not be doing as well and could drag you into cash flow issues you didn’t expect and could not predict. So make sure you always have your options up to date.
While this is perhaps a bit paranoid, the reality is that sourcing replacement capital can be very time consuming and untimely, so its better to keep up to date with the market than ignore it altogether. Spending some time in this regard 3 or 4 times a year may also uncover competitive financing opportunities that you can take advantage of which you would not otherwise be aware of.
Priority #2. Set one or two goals to improve your cash flow management. This can range from negotiating better supplier terms to following up more often with customers that are slow to pay their account. While you can’t save you’re way to prosperity, an analysis of company expenditures may uncover some areas where costs could be reduced or eliminated. Depending on the size of your business, doing this type of exercise just once a year can potentially pay for all your external accounting and finance related services.
Priority #3. Do some work on your business exit strategy. Even if you don’t plan or expect to exit the business for several years, there is no time like the present to start figuring out what a potential exit will look like, what needs to be done in the business to increase the value of a future sale, and what areas of the business records, systems, contracts, etc., need to be upgraded or improved so that the business can work towards being in a more “sell-able position”. When the day comes that a buyer and his advisers want to perform their pre-closing due diligence, you want this process to support your selling price and not uncover negatives that create price discounts or even kill a good deal altogether.
Spending some time each year on an exit strategy also helps make sure that what you’re doing in the business today is aligned with increasing enterprise value for time of exit. If the current strategy does not support this, you may be working at generating returns today that work against maximizing the value of your future business sale.
These priorities really do apply to all businesses in some way or another. Consider how each may be used to reduce your risks and improve your returns in the coming year.