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May 22, 2018

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Keeping the Cash Flowing

Positive cash flow is the lifeblood of any business

Jeff Zbar | 6/1/2006

The concept seems simple enough: Invoices go out, payments come in, and bills - salary, benefits, taxes, expenses, etc. - get paid. Yet poor cash flow management is a frequent problem at small businesses. It can leave a company struggling, living from check to check, and always trying to catch up on meeting expenses.

Positive cash flow is about controlling recurring costs, speeding up collections and making sure the balance sheet is in order. It requires setting reasonable sales projections, and then marketing sufficiently to generate leads and ensure traffic comes through the door. The business owner must stay atop late-paying clients to avoid problems, says Thomas Hermanson, with the Fort Walton Beach Small Business Development Center. "The computer may be able to spit out a daily report," he says, "but the owner has to know to ask for it.

Chem-Plus Service Systems:
It's Everyone's Job

Bottom Line:
? Involve the whole company in collections.
? Build relationships with customers, but don't fall for sob stories.

Keeping receivables current and cash flow high is a team effort at Chem-Plus Service Systems. The owners and 10 employees at the Sanford-based commercial dishwasher sales and leasing company each are charged with keeping customers current on their invoices. That means everyone from President Tom Donnelly, to his wife, Catherine, to the secretary and the company's 10 service technicians each receives a printout of customers' aging invoices. If the techs cannot collect while on service calls at some 500 area restaurants and hotels, Donnelly himself will call the customer to ask for payment.

"When I hear, 'Stop by next week' too many times," he says, "I cut them off."
With his eye on collections, the $2 million-a-year company has only been stiffed for $16,000 in 10 years of business. His most important tactic is to have every company representative build a personal relationship with the customers, and to always be responsive to customer crises. That way, customers won't renege on debts with friends, he says. "I drive that home all the time," he says.

Donnelly views cash flow as two drawers: One with money coming in, and one with money going out. The former drawer must have more than the latter, he says. "If we don't have it," he says, "we don't buy anything. It's that simple."

Maximizing Cash Flow
Maximizing company cash flow is more than invoicing early and watching what you spend. Use these tips to stay atop your company's finances.
Accept credit cards. Place recurring service fees on a credit card to ensure fast

Request direct deposit. Shave up to a week or more off receiving and depositing mailed checks by having funds deposited directly into the checking account.
Get terms - on both ends. In your contracts, get clients to pay faster, and push off terms for your payments to vendors. If the contract allows for twice-monthly invoicing, that can accelerate payments.
Track receivables. Not letting invoices grow late - a process called "aging" - helps ensure the customer stays current in payments.
Get credit. Use a line of credit as a stop-gap between pay cycles. Once invoices are paid, pay down the line.
Run a D&B. For a nominal fee ($30 to $300), a Dunn & Bradstreet credit management report on a client tells of their payment history or financial status.
Bring in the professional bean counter. Whether the company CPA or an outside CFO-for-hire, let a professional help set up a process to manage cash flow. This includes generating reports on aging invoices, monitoring collections, calling on clients - and generally improving cash flow.
Be persistent. Have an employee - or anyone who interacts with clients - monitor and pursue payments.


Getting Vocal

Bottom Line:
? Use the personal touch.
? Give discounts to encourage quick payment.

Several times each week, Darren Miller gets vocal about his cash flow - literally.
He'll be lying in bed at night with his wife, Tara, and he'll blurt out, "Cash flow's good this month." Or he'll be sitting at his desk reviewing his receivables, and he'll yell across the home, "Cash flow's strong and we have more projects in the pipeline. "Just saying it makes me feel better," admits Miller, owner of Paralogic, a Plantation-based internet and computer security consulting firm. "Saying it makes it more real." Saying it also shows that Miller is atop his cash flow situation - and is keeping his wife, who handles invoicing (all are transmitted electronically) and some collections (half are paid via electronic transfer), in the loop on deliverables and projections.

Beyond vocalizing to Tara, Miller gets buddy-buddy with his clients' accounts payable people. He submits the papers they need - invoices with purchase order numbers, updated insurance documents and W-9s when requested. That ensures payments don't get snarled in red tape and delays.
He also implores his clients to keep him informed on their own situations, too. In 2004, a client told Miller the company was being acquired and payments might grow slow for a while. "They were going to be cash-strapped, but I was OK with that because they were honest and very open with me about it," he says. Miller eventually landed several more large projects with the company, all of which paid on time.

As a home-based service business, Paralogic has only a few large, ongoing expenses. Still, to keep expenses from getting ahead of him, he asks for full, upfront payment from about half his clients, sometimes offering a 10% discount.
"If the money's in the bank, I can do more with it even with that 5% to 10% discount," he says. "Some people say that's nuts, but I run my business with very low overhead, so I can afford to do that."

Ash Engineering:
Detail Duty

Bottom Line:
? Put a system in place.
? Stagger billing to maximize cash flow.

Since launching Tampa's Ash Engineering with no formal business experience in 1993, president/CEO Janice Sands Ash has worked hard to keep collections high, receivables low and payables current.A quick analysis of receivables revealed that in many cases when customers took more than 90 days to pay, they claimed that the related invoices had been misplaced or never received. To put a stop to that customer excuse, Ash implemented a system in which a week after any invoice is sent, Ash's managers follow up with a call or e-mail to ensure it was received.

With 75 clients, a typical end-of-month invoicing resulted in a flood of checks once a month. So Ash revised the company's billing, directing each of five team managers to invoice customers during a different week each month. The staggered inflow of payments improved cash flow. "That helps fix the feast-or-famine effect, where you get a bunch of money in one week and nothing for three weeks," Ash says.

In 13 years, Ash has severed ties with only five bum clients. Such cash flow management means the company this year will lose less than 0.1% of its $4 million in anticipated revenues to bad debt, Ash says. "We're a slow, cautious grower, and we try to work in the black."

Tags: Florida Small Business, Business Services, Entrepreneur

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