Home > Uncategorized > Managing Cash Flow in A Bad Economy

Managing Cash Flow in A Bad Economy

October 12th, 2009 Leave a comment Go to comments

Managing Cash Flow in A Bad Economy
They say one should write about what one knows: otherwise it’s not believable or interesting. So, what do I know about? Keeping people in business. Since 1991 I have operated as an out-sourced CEO managing small businesses. Before that I was in Finance, Insurance and Technology, and watched Dilbert World™ first hand. Even married a certified Crazy Scientist needed to get up-close and personal. Either that or I like guys who know a Fourier Transformation from a Rolex Datejust.
What do I know?
Hard times required hard decisions. Like, I need that new server but my wife/GF wants to redo the kitchen so she can entertain her Girlfriends (and let them know you are In The Zone). Ummmmm: if you say the server, you might stay in business long enough for when the capacity becomes stretched: and then sell/sell/sell with your infrastructure in place BEFORE THE TURNAROUND. Oh, and keep your margins UP. Wife creates nothing but debt that cannot increase your capital with her stoopid girly kitchen. You should, in tough times spend nothing UNLESS IT HELPS THE BUSINESS.
I wanted it noted at this time: I am girly myself. I do like to cook, garden, do electrical work, plastering, painting, and make jewelry as an avocation. However, I am the one who sees the Books at month end and tells you “You gotta let someone go or give them all a 10% pay cut.”OK?
So, what do I think you should do? Well, if you are an employee pray a lot. If you have your own business I have more concrete ideas.

Receivables vs: Payables or, why you do need a budget
I am not a CPA. I have been a working accountant, controller/ risk manager, financial analyst since 1984. I have done due diligence on LLC and partnerships, wrote indemnification contracts (and priced them for Oil men, offshore drilling platforms and movie partnerships), and managed small businesses (including paying all the bills, managing Insurance & IT, and making payroll across 3 time zones, )and kept nice people in business. If they are idiots or A-Hs I fire them.
So, if things are tight what to do? You owe= Liabilities. You own= Assets/Income. When things are tight get the money in hand, charge or penalize if they cannot pay immediately, and watch your margins. Be firm and polite with clients who are slow pay. Do not hesitate to add interest and bill a deposit of at least 20%. Invoice at least monthly: send copies of invoice: text and call when you do. Do not work for people who have not paid for work already done. You deserve to get paid for your efforts.
When you spend time collecting on work already performed it affects your margins. Do not under price yourself. If you lose money on one unit selling 10,000 units is NOT going to turn a profit. I know more friends and family discounts that put people out of business than embezzlement or fraud.
Getting that One Big Client
If you have had your own business, you have clients that give you 5-7% of your Income, and you have clients that give you > 50% of your Income. You love that Big, Fat House Account that gives you regular and large income.
Beware! You are guaranteed to get lazy and stop marketing to get new clients (‘cause you don’t need to). And you will start giving your small clients less and less love- giving all the Love to THAT ONE BIG ACCOUNT. Most clients last from 9 months to three years. You will think that you will get new clients before you lose that Big One. But you will go from easy times to lean times in an hour. What is the solution? Keep marketing, don’t let that one client exceed 40% of your Income, and treat all of your clients with the same standards of service. Why do I know this? First hand experience.
Budgeting is not for Wheenies
Having been in Technology since 1991 I have repeatedly had clients who were Engineers with MBAs.
They are very good with numbers, but think they are above having to plan & adhere to a Budget. Their superior intelligence leads them to disallow protocols ( like Budgets), which leads to bankruptcy and unacceptable outcomes. Conclusion: use Budgets, adhere to them and have back-up plans and wiggle room.

Of course I trust him, He’s a Friend

What else causes small businesses to fail? Trusting people who are untrustworthy, and assuming that friends will do a competent job. Case in point: a small Macintosh consulting firm owned by two friends: one the Marketer/Sales guy, one the Geek. The Geek managed the technical side and the technicians: the “people-person” was responsible for Finance, Operations and Strategic Planning.

The Geek trusted his friend, who had a bad drinking problem, to watch the shop. His friend never wanted to know anything about accounting, only wanted to get drunk with the reps from Apple and attend Trade Shows- often leaving the Office by 11AM to go to the Slow Club up the hill.
What happened? After 4 years of losses they tried to sell the business. Due diligence showed irregularities in the Expense account of the “Friend”. Bankruptcy ensued.

Conclusion: regularly ask what your partner is doing, get cross trained, expand your skills to include “boring accounting” ( or whatever you are not good at)and do something other than file that 1120 in a drawer.

Categories: Uncategorized Tags:
  1. No comments yet.
  1. No trackbacks yet.
You must be logged in to post a comment.