For a company to survive and become successful it needs to stick to the simple formula
Cash Revenue > Outgoings
Any company however large or small stays in business if it can maintain this formula.
Throughout this journey it is essential to de-risk your business to allow it the freedom to grow and protect yourself if it doesn’t.
How do you score?
- 15% dependence on any client or supplier. This should be a maximum of 25%.
- No Personal Guarantees
- Always have a Plan B and a cut-off to Auto-enact
- Have a Cashflow buffer of in excess of 2 months overhead cover or more
- Always bank your business and personal bank accounts with different banks
- Never operate a negative Directors loan account
- An average of 3 months positive cashflow where more revenue has been received than paid
- Not be owed any revenue by your company. Never forgoe a salary without documenting a loan in the company accounts for doing so
- Never take loans to cover poor trading without direct action to ensure short-term cashflow positivitity
- Always have a Cashflow and Budget in place which is regularly updated and reported
There will be times in the growth and establishment of a company where these rules will not be adhered to. If your company operates with any of the points above then it is carrying excess risk. For a company to create balance then these rules need to be monitored and flagged when out of balance.
Score 10% for each area not covered
70% – 100% – You are operating a High-risk strategy
30% – 60% – You are operating a Medium-risk strategy
Under 20% – You are operating a Low-risk strategy
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