45. Four Steps To Build a Strong Balance Sheet

SUMMARY

Four Steps To Build a Strong Balance Sheet

In this short video, I discuss the steps to building a strong balance sheet. The benefit of maintaining a strong balance sheet is it provides greater opportunities during the good times and provides shelter during the bad.

Transcription

Four Steps To Build a Strong Balance Sheet

Welcome.

Today's video, we're going to talk about four steps to build a strong balance sheet. And a balance sheet is what the having a strong balance sheet is what's going to keep you from being able to withstand the storms and the winds that that may come against you outside of your control. So the businesses that had a strong balance sheet after the GFC, they did a lot better than the businesses that didn't.

And so I'm just going to give you four steps and these four steps come from a book called Right Away and All at Once by Greg Brenneman. So I'd recommend you reading that book if you enjoy reading.

1. Don't Run Out of Cash

And the first step is don't run out of cash. Which is an obvious thing to think about. But remember, Cash is like fuel for your business. So if you run out of run out of fuel, then you businesses is not going to go anywhere. So it's making sure you have the right liquidity and one of those things is not growing too fast. Businesses that grow too fast, they run out of cash. How many businesses, have we seen the, they, they're in the news for growing the franchise and the ground so often the ground, so much so quickly, but then a year or two later that had gone into liquidation. And one of the reasons for that is the ground too far. So don't run out of cash.

2. Know Your Leverage

Two is know your leverage. so how much debt do you have and how much can you, can you sustain? What would happen if your sales drop by? 30%? Can your business sustain such a drop in sales? Can  you continue paying back your loan. It's really just like a fixed expense. You still have to pay it back no matter what your, where your sales are at.

3. Debt Maturity

Three is related to two. But maturity is making sure you, you can push the maturity that you have to pay back as long as possible,but within the context that she or debt matches your assets. So your longterm debt matches your longterm assets. So in our,in our workshop on Friday, we looked at a Dick Smith's financial reports just before they were in broke. And so their longterm debt, they borrowed 70 million, but half of that went into longterm assets of 35 billion. And the other 35 million went to paying dividends or for paying expenses so that they did not match their longterm dead with their longterm assets.

4. Measure your Plan

And lastly, is measure your plan. So when you've got your strategic plan, you've got your goals on your plan, make sure you're measuring those goals. So because if you're not measuring you're not going to achieve them because you don't know where you are against them. And within the plan, make sure you have your current plan that you're working on, but then always be working on, on a higher plan, on stretch goals. So Alan Mulally the ex CEO of Ford who is credited to turning forward around just before and after the GFC. He's, he always said, have a plan but then have a second plan that you're working towards. I hope this was helpful for you.

This is the four steps to build a strong balance sheet. Don't run out of cash. 

Now you leverage,you understand you did maturity and then measure your plan.

Thank you.

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