bizRichard

I stumbled across a new slant on the acronym “sitcom” this week - which stands also, I believe, for “single income, two children, oppressive mortgage”.

Engaging though this acronym may seem, it embodies the undertones of a very sinister reality too –

Three years ago domestic debt stood at approx £1Trillion, after doubling over the previous five years. Figures now indicate that private sector debt, up a further 35% at £1.345 Trillion, has now overtaken UK Gross Domestic Product - we owe more than we make.

Average personal debts now stand at 1.62 times personal income.

The Bank of England calculates that debt service costs have now surpassed their previous peak, set in the early 1990s, when interest rates were much higher than today, and that 7.7% of households are struggling to pay their mortgages. Owners have increasingly transferred borrowing from credit cards to their mortgage to try and make ends meet, which is fine when house prices are rising and interest rates are low - but house prices are no longer rising and interest rates are no longer low.

We haven’t yet entered a period of falling house prices, but a major (and usually bullish) building society reluctantly admitted this week that prices are unlikely to rise by more than ‘wage inflation’ at best next year. But what if house prices do fall?

With wage growth already at a four year low, a tilt into recession remains a strong possibility.

And this is not just a UK problem, as volatility in stock markets across the world reflect the growing unease internationally.

But hey, why the economics lesson?

Because it’s time to issue a warning, especially to businesses in the SME sector. It’s time that you made sure your ‘cash collection’ systems are strong and that the amount of outstanding money owed to you is maintained at an absolute minimum at all times. Deal only with customers who keep their account in order – not only does it show that they respect you, but importantly you minimise potential bad debts and consequent losses.

Don’t get caught

To recover from a ‘bad debt’ of say £5,000 for example, might require NEW sales of perhaps £33,000 (on a net profit margin of 15%) – not an easy task at the best of times, let alone in a recession.

Lets not beat about the bush on this one.

Cash critical. Without cash you can’t pay your suppliers – and without suppliers or labour your business is ‘dead in the water’. Cash is the life-blood of your business – the very substance that keeps it going. And having cash to hand is the only way that you will survive recessionary conditions when they arrive.

So be prepared. And if you need any help in improving, designing and implementing cash controls, you know where to come – just give me a call.

Now, go make some money the smart way!

Doctor Richard C.

PS
Your new policy on debtor management could also
be ‘sitcom’ – ie
for a “Secure Income, Take Cash, Otherwise Misery”

PPS
I am in the process of writing a ‘guide to cash survival in difficult times’ (title still to be decided) so keep in touch if you would like a copy.