I write a monthly newsletter – or at least, I attempt to get a newsletter out every month – there is a subtle difference there (and see the form at the foot of this page if you’d like to subscribe to that potentially monthly event.). Occasionally, I get a response from the newsletter that suggests that the content ought to go out to the broader TLR audience. That happened at the beginning of this month – so here is that newsletter. And we’re talking about your (and my) business finances.
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Sailing into dangerous waters – and who’s hand’s on the tiller?
Possibly more to the point, whose hand is in your till?
“No more boom and bust” is what our politicians used to tell us – on a regular basis. Its not a claim that we’re hearing this time around; it’s more a case of “you’ll just have to grin and bear it.” (said the multi-millionaire).
I heard on the BBC that the Treasury wonks only look back about 30 years when it comes to planning our economic futures. So, apart from the global glitch that was the 2008 financial crash (that had nothing to do with us and only served to shore up the banks that caused the problem in the first place) there’s little or nothing that these guys know about rising inflation and soaring interest rates.
So: as one of those still standing from the last time we were headed in the direction of stormy waters, let me just hand out a couple of tips and leave it at that for this newsletter.
The usual rules of doing business do not apply when everyone else is desperate to hold onto whatever project funding they have. The pressure from the streets will be to hold onto what you can while giving away as little as possible.
Let’s look at two sectors: the design community and the manufacture/supply sector.
Lighting designers have always needed to balance fee payments with design work achieved. I’ve always believed in a monthly payment schedule so that – if things go pear-shaped, you’ve hopefully limited your losses.
When times get tough, clients will look to delay payments; possibly proposing stage payments rather than the monthly outgoings. What that means is the design house is exposed to an entire tranche of work and hasn’t seen a penny for it.
At worst, that information can be handed over to a contractor to finish the work.
And remember – the lighting designer is only one link in the chain that is the design team. Between the lighter and the actual client, there’s likely to be the architect and the M&E consultant. And if they’re the ones paying you, there’s a risk that they are being paid in the same way.
Resist at all costs (literally and metaphorically) the temptation to feel generous by extending your payment terms. Your bank won’t give a damn about how you were trying to help out,
Manufacturers and suppliers often have a double jeopardy. Not only does the manufacturer have to agree payment terms looking into the contract; they also have to look at the direct costs that need to be paid to fabricate the product in the first place.
We tend to think that every manufacturer is a hard-nosed wheeler-dealer with a constant eye on the bottom line. That may be true, but when times get tough (see above) then the same pressures apply. Extended payment terms will be sought; jobs that would normally be handled via pro forma will be done via invoice (after all, what can possibly go wrong?)
We know what goes wrong: if you’re lucky, you get the money just a month late – you just sweat out the extra 30 days. If you’re not lucky then the fittings get installed and there’s no payment because . . . well, there’s something not right and we can’t pay you until whatever it might be gets corrected. One day – someday – never.
And then: we’re all expected to believe that the client is robust; that the main contractor is financially secure – and there’s no risk of either of them going down. The reality can be a business killer – and it does happen.
Whatever you do, hold the policy line; its there for a good reason. Get your money in early.- and don’t put the financial risk on yourself.
Oh: and when someone suggests that there’s a golden future in this great new relationship, provided you can just agree a special deal this time . . think of it as a loss-leader. When I hear that, I stop listening after the word ‘loss’.
We’re in for some rough business. Take care of yourselves.
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