Richard Russell, back in 1958, started to publish his views on the Dow Jones Index, in a series of letters referred to as the “Dow Theory Letters”. His personal algorithm (a term not made popular until the 2000’s) on market trends made significant calls on the market like:

  • Buying gold in 1960’s
  • Called the end of the great bull market of 1966; and
  • Called the end of the great bear market in 1974.

His personal algorithm was his secret sauce. On top of calling the trends in the Dow Jones, he also formulated, what he believes was the 12 points of the perfect business.

Remember, this fellow called these 12 points without the aid or experience of such technologies as the fax machine, internet, artificial intelligence, Google and before the rise in the globalisation of world trade.

The perfect business, according to Richard Russell, has the following characteristics:

  1. Sells to the world
  2. Inelastic demand (a product in need)
  3. Unique products
  4. Low labour costs
  5. Low overheads
  6. Low investment
  7. Cash billings (C.O.D)
  8. Regulation free
  9. Portable (can operate it anywhere in the world)
  10. You love it
  11. Continuing need
  12. Free time (does not require your labour and attention and makes money while you sleep)

Most of the 12 items above, would have been part of your business planning, before you started in business. Some of the items may not be able to be changed, given the industry or business that you operate in. However, one item that you can take control of and change how you do business is item 7: Cash billing.

The COVID pandemic has really brought to light a concept that Wall Street has believed in, almost as their mantra, that is: “Cash is King”. Right from the outset of the pandemic in 2020, Insolvency Practitioners were preaching from the hills that, for survival, business owners need to shore up cash.

Cash is the lifeblood of your business, and like the human body, if you have no blood, you have no life.

Easily said, but is it easily done?

The insolvency and credit management professions, have been saying since March 2020, that now is the time for business to seriously consider the following changes to how you do business (and expect some of these changes to be applied to you from your suppliers):

  1. Be critical of your customers (even if the relationship has been in existence for years);
  2. Reassess your customers (check out their credit profile, applications in Court, consider their credit worthiness in light of the pandemic, end your relationship with poor performing customers)
  3. Reassess your terms and conditions of trade
  4. Consider getting a personal guarantee from the ultimate person behind your customer (i.e., the director of the company)
  5. Tighten your credit policies (i.e., shorten your payment terms, offer discounts for early payment (ideally trade on a ‘cash on delivery’ basis), apply interest on late payment and enforce it (it is your money that your customer is holding at the end of the day), consider a ‘charging clause’ that allows you to place a caveat over real property of your customer (something Bunnings and Tradelink have been doing for years)
  6. Seek advice on elevating your status as a ‘secured creditor’ through the Personal Property Security Registration
  7. Don’t give credit freely (ideally, not at all)
  8. Make sure you know exactly who your customer is (i.e., is your customer an individual, partnership, company, trust.

Having experienced over 1,000 insolvency files in my career, I have come to believe that:

“Agreements are not there for the good times, they are there for the bad time. The problem is, you can only get agreement in the good times”.

Use the good times with your customers to consider changing the way you do business and have the tough conversations now. By not having these tough conversations now, you sacrifice short-term discomfort for long-term dysfunction.  

Chris Baskerville
Partner, Jirsch Sutherland
Registered Liquidator (ASIC) and Registered Trustee (AFSA)


Call or email Alan and his INVISION Team today to make sure you and your business aren’t caught in the forecast insolvency Tsunami!

Contact Invision Bookkeeping on (07) 3293 1436 or email us