Are you an ‘Ant’ or a ‘Grasshopper’?

Do you remember the Aesop’s fable, The Ant and the Grasshopper?

For those who aren’t aware, the story is about an ant colony that spends the summer months gathering and storing food for the winter. Meanwhile, the grasshopper basks in the sun, singing and enjoying what the good months deliver. When it comes to winter, the ants have worked diligently throughout the previous months and are still be able to eat, whereas the grasshopper is left with nothing. In business terms, we are in “summer”. Most builders are currently busy, and demand is strong. Sure, there are frustrations around council inspections and material shortages, but that is the equivalent of complaining about sunburn because the sun is too strong. For those of us who have been around for a while, we know that winter will surely follow summer and things will get tougher. Just when that will happen is anyone’s guess. The fundamentals are still strong, and it is hard to keep pace with the high demand for houses. Renovations have been one of the most popular ways to spend the overseas holiday budget, however once the world has a higher level of vaccinations, I would expect the pent-up demand for an overseas holiday to reduce or stop the flow of money into that space.

I don’t want to be viewed as the fun police, but now is the time to start acting a little more like ants and use what remains of the summer to make your business balance sheet stronger. It can take some time to “gather your winter stores” so the sooner you start, the better. Your balance sheet indicates the overall value of your business and can be a good indicator of its overall health. A strong balance sheet gives you more resilience to weather a downturn and is also helpful if you need to go to the bank to borrow money. I could probably write a book on this subject, but a few things to consider in your plan to improve your balance sheet strength may include the following:

Improve profitability

Increased profits can be used to pay down debt, buy more productive assets or keep in reserve. This is probably the most effective way to have an ongoing positive influence on your balance sheet in the mid to longer term. Within this item there are dozens of levers to move to help grow your profits and I have written about some of them in the past. Contact me if you want more information and to put a profit improvement plan together.

Pay down debt

Interest rates are at an historic low, so start paying off more and gradually reduce your level of debt. Debt is useful in a business (especially at these cheap levels) but too much debt, compared to shareholder funding, will make banks nervous. Improve your cash flow

This is good to do at any time, so get into the habit of looking at ways of speeding up the flow of cash into your business and consider ways to slow the outflow. If you would like a copy of my 21 Ways to Improve Your Cash Flow guide, email me at andy@tradescoach.co.nz and I will send you a copy.

Sell unproductive assets

Do you have assets that are not generating a healthy return and are not likely to? Consider selling them to free up cash. Some assets date very quickly, so you may be better off leasing them, rather than owning them.

Keep your drawings under control

One of the biggest temptations for small business owners is to draw too much cash out of the business for personal use. I know that new boat is crying out “Buy Me!” but you need to take care not to starve the business of cash and overdraw what is owed to you. An overdrawn Shareholders Current Account will sit on the balance sheet as an asset (because you owe that money to the business) and if the company was ever to be wound up, you will need to pay up your Current Account to pay off creditors.

All these strategies I have listed above are good practice. Put a plan in place to implement them over the next little while and even if winter never comes, or if it is very mild, you will get to enjoy an even better summer.

To book in a pre-winter business health check with me, email andy@tradescoach.co.nz and I will contact you to start the process.

Andy Burrows, Director of The Trades Coach and NZCB National Partner. I encourage you to take advantage of a free business strategy review session to see how we can improve your business performance. Call Andy today on 027 688 6721 or email andy@tradescoach.co.nz.