First Point: I do not know the truth of the reasons for or the extent of the weakness in the financial markets. Neither do financial news editors or anyone in the government.
Second Point: Accept the fact that financial markets are in turmoil and consider some rational information. The following is an excerpt from an article published by Marc Cenedella who owns The Ladders. It appears to me that what Marc writes is accurate and maybe it will help you understand the practical risks related to the liquidity for your business. Following Marc’s comments, I present a three step action plan for you. Marc writes:
” It came to a head last week.
The bankruptcy of Lehman Brothers caused one of the money-market funds – the “MMA” accounts that you might be sweeping your cash into in order to get a slightly higher return on your money – to “break the buck.” So your dollar invested in that particular money market was now worth only 97 cents. That is, the account that we all thought was safe turned out to be not safe.
As a result, reasonable people like you began, not surprisingly, to withdraw cash from MMAs and put it into super-safe investments like government bonds and gold. At one point during the week, some government notes were trading at a negative interest rate – that means people were willing to pay more than a dollar today to make sure they got back their dollar in thirty days!
Extraordinary times, indeed.
Because this “money market” has historically been very, very, very reliable, operating companies had come to depend on it for daily financings of really mundane stuff – buying inventory, financing payables, funding payroll.
So with MMAs draining cash, the real operating companies of the country, from the Fortune 1000 to your local beer distributor, began to find that the funds they needed to operate their daily business were not there, or were priced with ludicrously high interest rates. As a result, real companies, not just those on Wall Street, were facing a dire situation.
By Thursday evening, it got so bad that Secretary Paulson and Chairman Bernanke went to Capitol Hill to explain the situation to lawmakers. Senators present commented, they were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.” Another said: “History was sort of hanging over it, like this was a moment.”
In the absence of action, what we would have faced this week were real companies unable to do business. Unable to buy inventory, unable to pay their bills, unable to meet payroll.”
Steve Pohlit’s Three Step Action Plan Related To Your Company’s Liquidity:
1. Implement a daily liquidity (cash management) “flash report” if you don’t already have that in place. This report gives you the status of all cash and near cash balances (typically inventory and receivables) along with short term liabilities. I advise using more than one financial institution as a depository for cash balances.
2. If you have receivables and inventory in your business, you must develop a list of higher risk receivables and monitor those balances daily. Monitoring includes having a direct connect with the customers who owe you the money and a health report on their business. This same logic should be applied to critical path suppliers. Do not assume that any vendor can easily be replaced in this economic environment.
3. Take aggressive steps to move your business forward. Step up near term performance goals. One of the best tools I have seen work recently for on line marketing is the combination of an integrated website, blog and video. I am preparing a special package to help those companies not using these tools to get started right away. In the meantime if you are ready to move on this recommendation or need help with the about three action stops or more, please call me Steve Pohlit at 727-587-7871
Sending all my readers the energy of wellness, peace and abundance
Steve Pohlit, www.StevePohlit.com
Steve is the President of International Business Consulting Resources. His firm specializes in guiding companies to rapid increases in revenue and profits with a sustainable growth rate. Don’t miss my FREE Report: How To Make More Money With Your Business Now and Long Term I am building my practice and welcome new client inquiries. Call me for a fee consultation at 727-587-7871