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Credit rating
HAS you business got a good credit rating? Do you know what your rating is? And if so, how can you improve it?
These factors are considered critical if you are looking to get deals from banks or suppliers, including overseas, and yet they are often neglected by businesses, with one of the main reasons being a company's failure to share details about their activities.
Credit agencies are known to consider three key elements.
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How much equity is in the business and whether shareholders reinvest profits, to assess the long-term solvency.
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Short-term liquidity, which covers what is going in and out of the business in terms of costs and income, ie cashflow.
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Profitability.
However, some small and medium firms no longer need to supply full audited accounts each year and therefore, lenders and other business contacts may be more reluctant to provide credit without access to these details. So the answer in these cases is to think about whether you should file accounts despite it not being a legal requirement. That way, allowing others to see the strength and solidity of your company can be a huge benefit where your rating is concerned.
It is also worth noting that suppressing profits to pay less tax and taking money out of the business to finance lifestyle can also lead to a credit rating being affected. Crunched even.
Short-term liquidity can be easier said than done. Sometimes the banks need to help out here. I have a friend who works ina company where there are plenty of orders, just not enough cashflow to meet demand. That's the key, makiung sure you have enough money to finance the order. You could accept a £1m contract but unless you get the people to start paying you some of that money as the job progresses you won't be able to finace it.
I know a colleague who has managed to stay afloat in business despite the awful cashflow problems brought about by creditors squuezing for money and the banks not lending to him. He has managed to keep his firm going thatns in the main to loyal staff who have just taken another pay cut rather than lose their jobs. That takes a lot of character to have to provide more for less and the companies like that need help because they are doing all they can.