KeyPlay Business Solutions

How Would Ants Relate to the Business Cycle?

Recently I have been working with various businesses in order to improve their cashflow. A common thread occurs time and time again. All businesses have good times and bad times, patterns and cycles come and go. Other examples include the stock market, property prices, the business cycle, even the earth spins and we have winter followed by spring. There are lessons to be learnt in this process and even in nature. As some of you may know, I live on 25 acres. That is my getaway from busy weeks looking at computer screens and pouring over numbers. One thing you notice living on the land, is that a week before it rains, ants always stockpile food and build big walls around their nests to keep the water out. Now I am not an ant, but boy they are wise, and a week to an ant would have to be a year or two. I guess millions of years of winters followed by spring meant they adapted to this process.

Business and governments should be no different. Good times never last forever - there are winters and just like the wise ant, a business should set aside a certain amount or % of cash or liquid assets. Cash flow is King and always will be. One mistake to make is to have a great cash flow but only to convert too much of it to non-liquid assets. Then when things slow down and cash-flow become poor, the capital assets may have to be converted into cash at fire-sale prices. Many businesses can be asset rich and cash flow poor in economic downturns. Berkshire Hathaway's chairman, Warren Buffett, lives this policy and makes his company keep large cash reserves during times of economic downturns. At this point he picks up other companies for a bargain.

Good advice from the humble ant and also from Warren Buffett, arguably the best company chairman the USA has ever seen.

So the lesson is when the sun is shining, save your cash - don't spend it, when winter comes make your move.

Be different !

Cashflow can help to achieve these goals, goals  we all should have:

• Run a very profitable business -  Ask us about business improvement.
• Pay off your home loan - Reduce Non-Deductible Debt First !
• Build up investments outside your Superannuation - Negative Gear maybe. Build Equity.
• Run a Self Managed Superannuation Fund - Build up your Wealth.

Contact Jamie Johns to discuss improving your cashflow. Start by reviewing our webpage on cashflow statements.