I recently received an email from Dr Peter Miller, Principal of The Geelong College. In it he said, “The next three months will be important and revealing given hardly any of my staff know what a recession actually looks like and may wonder why we have been so pleased to avoid one for nearly 30 years.” The following tips look at how you might deal with some of the issues that could arise over the next two quarters and perhaps beyond.
- Control debtor risk. Downturns can lead to an increased risk of parents and other creditors defaulting. Be aware of the status of collection rates and overdue payments. To minimise problems, review debtor information regularly but agree with the Board on a sensible level of credit or discounting to be granted to struggling parents.
- Collect late payments. Ensure that there is one person in the school responsible for collecting late fee payments. Make sure there is an effective process for doing this.
- Improve invoicing. Make sure all invoices are dispatched quickly. The quicker invoices go out, the quicker the school will be paid. If possible, consider interim invoicing.
- Keep tabs on inventory. The fastest opportunity for freeing up cash comes through a reduction in inventory that the school carries e.g. stationery, consumables, uniforms. A focus on inventory also builds an awareness of the carrying costs of that inventory.
- Exploit the school’s buying power. In a downturn, a seller is more dependent on a buyer than a buyer is on a seller. This provides a golden opportunity to extract cost benefits from suppliers. Rationalise the number of suppliers, seek concessions such as trade rebates, cumulative volume discounts or more frequent deliveries.
- Avoid ‘analysis paralysis. In difficult times the temptation is to put off the hard decisions until you feel you have all the data and information that you need. Sometimes you just have to rely on ‘gut feeling’ to determine when to make the ‘hard calls’.
- Stay lean. As the economy recovers, preserve the best of what you school has become. Continue to reduce costs, strive to free up flows of cash, remain flexible and eliminate bureaucracy.