David Brown

Why It May Be Time to Tighten Your Balance Sheet

Economic warning signs mean it’s time to prepare for a recession. Here are four ways to start.

Published

10 months ago

October 11, 2022

David Brown Instore October 2022 Issue

“It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness.” — Charles Dickens

FOR ANYONE FOLLOWING the stock market at present (or for that matter cryptocurrencies, the property market or any other asset bubble), you could be forgiven for requiring a strong dose of medicine each day just to survive. Economically, we live in a time that can best be described as “interesting” — providing, almost simultaneously, great wealth opportunities and widespread financial destruction, depending on which side of the ledger you sit. Those who have been involved in tourism over the last two years have been decimated, whereas anyone providing a service that can be done from home has been printing money. The rest? Somewhere in between.

The true impact of Covid lockdowns has been deferred by a wave of government money, but the consequences of these actions are now starting to catch up with us. Supply restrictions, combined with too many dollars chasing too few products, has resulted in rising prices. In an effort to curb this, central banks have reverted to their trusty handbooks and gone with the tried and tested method of raising interest rates to curb borrowing and demand. How this plays out will be interesting to say the least.

What we can be sure of is the cost of money will be increasing, which will have a material effect on the time value of holding money and the cost of borrowing it. To protect yourself in these times, it pays to review your balance sheet and see how this increased cost will affect your business.

Review all debt. Are you able to comfortably manage a rate increase? At what interest rate will things start to become tight? You’re best to know these answers now. Are you able to refinance and lock in some certainty before money becomes more expensive?

Build a cash buffer. Sitting on cash during times of rising inflation is not always a good strategy but it will buy you some time at present. Rising interest rates will, at least, ensure you get a better return on your money while you sit on it.

Find more capital. It may not be necessary but, if the need arises, can you inject more capital into your business? If so, where can it come from??

Sort your debtors and creditors out. Retail is a wonderful cash business, but if you do have anyone buying on account, the cost of not getting that money in could be about to go up. Likewise, many of your creditors may start to put more pressure on you to pay your accounts promptly. Planning will prevent this being a shock if they ask.

The warning signs of economic uncertainty, and possibly a severe recession, are there. Head them off while it’s easier and cheaper to prepare.

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After 47 years in business, Jim Saylor, owner of Jim Saylor Jewelers in Kapa’a, Hawaii, knew retiring successfully meant holding a going-out-of-business sale. He also knew he needed help to do it right. He chose Wilkerson. “I’ve heard a lot of different names of companies that do this type of thing,” says Saylor. “Wilkerson’s always seems to be in the forefront.” Saylor says the Wilkerson folks really cared about the success of the sale, making the next phase of his life a lot easier. “I’d recommend Wilkerson to anybody contemplating a change,” he says. “They are true experts.”