What's New At Credit Matters?

Welcome to our December newsletter. The focus of this newsletter is a quick reminder about the three core requirements of operating a business, which are, cash versus debt, access to good people, and reputation. Our special topic meanwhile reviews the potential damaging effect of an inappropriate ideology focus put forward by management has on their business.

Kim is available to help with your questions and concerns if you need any assistance, and as always, the first chat is always free of charge or obligation.

As this is the final newsletter for 2023, I would like to wish you all a happy Christmas and New Year. May 2024 be prosperous and equally important, be kind to you and your families.

Quote Of The Month

“Like Warren, I had a considerable passion to get rich, not because I wanted Ferrari's - I wanted the independence.” By Charlie Munger.

Monthly Business Observation

Increasingly we are seeing the value of cash in our pockets and in our bank accounts. Cash in our pockets allows us to buy in areas where digital payments cannot operate, or where there is a denial or lack of service. In addition, we have been warned there may be disruptions this summer from power shortages, fires and even floods.

In light of the above, it would seem to be an excellent risk management practice to carry at least a small amount of cash in your pockets.

As Charlie Munger advises and as we all know, with cash, we have financial and emotionally wellbeing. The value of cash therefore cannot ever be underestimated. It is true, cash in the bank account may be sleeping however it is never lazy. In fact, it is gaining strength and  earning interest, whilst waiting for an opportunity to spring into life and allow you to buy assets and services at a great discount.

Debt can be valuable in helping to build our business and assets. However, as demonstrated time and time again, the interest bill can only be partially reimbursed as a tax deduction. In addition, when we run out of cash or unforeseen expenses occur, the principal and interest still need to be paid.

Furthermore, when you borrow, the needs of your creditor may well affect your ability to control the future of your business. As an example, if there is nothing else, we have learnt from COVID, a business without cash is not a business, especially if the business also has debts which need to be repaid.

This Month's Business Inconvenient Truth

A good reputation is worth its weight in dollars because your stakeholders are more likely to want to trade with you due to there being fewer hassles when doing business. For example, it is likely your customers will buy from your business rather than your competition because of great customer service and few problems. As a result, although many customers may be price sensitive these days, others will still buy from you even if your price is a little higher.

If a business has a good reputation and there are occasional problems because of mistakes, your business’s stakeholders are more likely to be more forgiving once the problem has been resolved and trade with you again.

It is also worth remembering, that people refer those businesses with which they have received satisfaction, to other parties. These referrals are valuable as they reduce the need and cost of advertising. The only feedback bad reputations accrue on the other hand, are those which are suggesting it is not worth doing business with you at all.

Meanwhile, businesses with bad reputations or with a history of causing problems, often incur higher prices for goods and services, delayed payments, and are generally thought of as a last resort stakeholder for business.

At the end of the day, businesses with good reputations gain many benefits, whereas those businesses with bad reputations only gain last resort business or negative advertising.