I have been watching the bank situation in Cyprus recently and then the European Union for quite some time. I believe our world is quite small when it comes to finances. I suppose my readers have also seen where Brazil, Russia, India, China, and South Africa have formed an institution (BRICS) similar to the World Bank and will be its competitor.
Back to Cyprus, which is an island where those with Greek heritage and the Turks have argued about ownership for years. Turkish troops occupy 40% of the northern part of this little piece of land in the Mediterranean Sea. Now the government has another crisis on its hands-going bankrupt.
The two news articles at the end of this blog gives details to the problem, but essentially this has been coming for a long time. As soon as the Greece banks fell, Cyprus knew they would be next since their banks held major deposits in that country too. Russian backed banks have a presence on the island and they are having problems also.
Bailout or Bail-in? The European Union has bailed out banks in Ireland, Portugal, Spain, and Greece.
What they are planning for Cyprus--have personal accounts bailout the banks. In other words, a "bail- in". I couldn't quite understand if this will go through, but people cannot get all of their money out at one time. They are limited to a daily quota. The regular "Joe on the street" is bailing his own bank out by not being able to access his funds. So far, people are not rushing their banks and getting only what they need. Perhaps the seriousness of the situation has sunk in since the Orthodox Church has announced they will loose about $130 million from their deposits. But they are ready to stand with the people as the people loose too.
Lessons Learned
1. Have an emergency fund on hand. And make it cash, in small enough bills to transact anywhere. I know this may be hard depending upon where your business is located, so make arrangements, find a location you can travel to, etc. where you can access cash that is not in a bank. Banks fail. Take precautions. In fact, think of several emergency scenarios (weather, etc.) and plan ahead.
2. How dependent are you on credit card transactions? How many transactions can you make with the cash you have on hand? Likewise, would you insist on cash from customers if banks fail like in Cyprus? If not when? Start working with some of your more solid suppliers and customers with basic discussions. Perhaps an emergency 7-14 day plan can be put into action due to the forethought of yourself and them.
3. Diversify your funds. Think of opening several accounts in different financial institutions. Check out what each offers, what and how they lend to small business, and to you as a person. Don't keep all your funds in one place.
4. Ask yourself how many steps back can I take? Write it down. How close are you to shutting your doors? Get help now if you need to and/or ask questions to steady your business foundation. Take the time to seek for ways to improve your business now. I know this is hard because there is always something that needs your attention. I know there is always critical mass when you are a small business owner. That is why I talk about the "panoramic view" so often. Being too close deflects what you need to see. Step away every once in awhile and give the other side of the brain something to think about. Planning is just as important as action. It is a partnership, a relationship that has to have balance. If done right, it is one you can always count on.
http://www.mcclatchydc.com/2013/03/26/186997/in-cyprus-financial-crisis-even.html
http://www.businessweek.com/news/2013-03-27/cypriot-banks-to-open-for-first-time-in-2-weeks-with-cash-curbs#p2
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