Are you "crisis-proof"?

History shows that every period of boom is followed by a period of bust. This was true in the 1930s and 1980s and will be no different today. Currently, the economy is booming and it is almost impossible to imagine that the previous crisis shook the markets and stock markets more than a decade ago. Yet there are already (small) signs that the next crisis is coming in not too long.

For example, due to low interest rates, risky loans are increasing and housing prices are soaring. Also, fewer purchase orders are being issued, unemployment is rising again for the first time in ages and the German economy is showing signs of a further recession.

Given the adage "when Germany sneezes, the Netherlands catches a cold," it is therefore only a matter of time before the effects will be felt in the Netherlands as well.

Therefore, it is wise to consider now - in these currently good economic times - whether you are ready for the next crisis. After all, you don't want to be surprised by the next crisis, do you?

In this article, I will describe some things that are at least critical to have in place when the next crisis arrives.

Have your cash flow in order

Inability to meet current obligations is almost always caused by a cash flow problem. This means that the inflow and outflow of money is not in order.

A cash flow problem can have major consequences such as bankruptcy or termination of credit, but fortunately is often relatively easy to improve with, for example, the following measures:

1. Implement an efficient accounts receivable policy
2. Implement an efficient accounts payable policy;
3. Work with asset financing such as factoring or leasing;
4. Keep a smaller stock;
5. Limit pre-financing of work in progress.

I previously detailed the tips mentioned above in my article "Tips to improve cash flow."

Have your securities in order

If you have lent out funds, you want to make sure you get those funds back. You want that even if the borrower goes bankrupt.

Collateral ensures that you do not have to whistle for your money in that case. What is important is that the value of the collateral covers the outstanding funds.

You can think of the following securities:

1. Pledge;
2. Mortgage rights;
3. Bail;
4. Joint and several liability;
5. Warranty.

I previously elaborated on the collateral mentioned above in my article "What are collateral and what can you do with it?".

If you have borrowed funds yourself, it pays to examine whether you have provided too much collateral to your lender.

If so, there may be opportunities to release some of the collateral again. In that case, you will have the room to provide additional collateral again to a lender in worse financial times if necessary.

In any case, it is important to stay in conversation with your funder. This will maximize the likelihood that the financier will continue to trust you. In this way, you also prevent him from claiming the funds provided immediately in less economic times if you unexpectedly miss one payment deadline.

After all, your lender is generally not eager to have to foreclose on his collateral either.

Have your records in order and file your financial statements on time

With properly maintained records, you have quick access to the figures and results of your business. This gives you quick insight into your costs, your sales and your profits.

This will allow you to respond to developments and adjust your activities if necessary.

In addition, as business owner , you are required by law to keep and maintain proper records. These records should be appropriate to the nature and size of your business.

If you fail to comply, you run great risks of being sued privately by a receiver or creditors. The same applies if you fail to file the financial statements of the legal entity of which you are a director on time.

I previously elaborated on the aforementioned risks in my article "the risk of directors' liability." In this article, I have also discussed other forms of directors' liability and also provide tips on what to look out for to avoid it.

Conclusion

Another crisis seems far away, but in all likelihood it is not. The first signs are already there. It is therefore advisable - while there is still a boom - to be well prepared and have the current position of your company and your position as a director reviewed. You can do this very easily and relatively inexpensively by having a quick-scan made. This quick-scan allows you to act quickly to prevent your company and you privately from being (unnecessarily) hit by worse times. After all, prevention is better - and cheaper - than cure.