Thursday, January 6, 2011

18 tactics you can use to improve cash flow:

 Last week’s blog listed 3 simple techniques you can use in your business to improve cash flow. Now, let me add 18 other:

1) Increase sales, particularly those that involve cash or have short payment cycles

2) Reduce direct and indirect costs and overhead expenses

3) Defer discretionary projects which don’t have near-term cash paybacks

4) Increase prices & charge a service fee (which is basically interest) on slow payers

5) Become very selective about granting credit

6) Either obtain partial or full payment on delivery (COD) or receive partial or full cash-in-advance (CIA) for your products or services

7) If the customer doesn’t have sufficient resources, obtain personal guarantees from the principles. (You’ll discover that a creditor generally is willing to pay up, especially if you have a lien on their house or property)

8) Shorten the time when payments are due

9) Immediately bill the customer as soon as the work is done, or better yet send out partial billings for work-in-progress

10) Review your accounts receivables weekly and jump all over any account this is past due

11) If possible, obtain more lenient credit terms from your suppliers

12) If you have enough positive cash flow, take advantage of all credit discounts

13) Reduce inventory levels and control work-in-progress

14) Sell off or return either obsolete or excess inventory

15) Defer non-critical capital & equipment expenditures

16) Sell off non-critical assets

17) Raise additional outside investor equity

18) Convert debt into equity.

Regarding the last item of debt vs. equity, remember that debt is a lot cheaper in the long run than equity. But also remember the adage that “in the long run, we’re all dead”.

As a business owner, you have to pay careful attention to both the technical as well as the financial portions of your business in order to maximize your opportunities for positive cash management.

Thursday, December 30, 2010

Cash Management:

“Cash is king!” I know this sounds terribly familiar. Yet, it is frighteningly clear that business after business forgets this critical admonition.

In an earlier blog I mentioned that 30% of all businesses whose income statement show them making money…go broke! Don’t ever forget that you can’t make next week’s payroll from accounts receivables or inventory.

So, what can you do to make absolutely certain you have adequate cash resources to sustain your business regardless of the economic climate?

Well, simply stated, cash resource management involves controlling the time between paying suppliers or employees and collecting payment from customers.

If, in your business, you find you’re doing either of the following 2 actions which can drain cash flow, you very well may be headed into a cash flow crunch:

1) Obtaining loans at very high interest rates

2) Using factoring on your accounts receivables

Here are 3 simple techniques you can use to improve cash flow at your business:

1) Don’t extend credit terms to your customers beyond a reasonable amount of time

2) If possible, defer payments to suppliers or staff

3) Don’t replace equipment if there is the possibility of maintenance or repair

Next Week’s Blog: 18 tactics you can use to improve cash flow:

Wednesday, December 22, 2010

Improve Your Chances for Bank Loans:

We all know that banks have severely tightened their loan approval processes. It used to be easy to get a credit line expansion or a favorable accounts receivable loan; not any more! During this recession, banks have become so risk averse that only a pristine balance sheet guarantees you’ll get the money you need to run and expand your business. And sometimes that’s only if the gods are on your side.

So, what can you do? Here are two strategies that will improve your chances of getting the cash:

1) Step up your auditing procedures. Sit down with your accountant at least twice a month a review every invoice not just for accuracy but for how vital the service or product you’re receiving. You may be paying for a janitorial service that could easily be done by your employees. Or, do you really need to have an outside coffee service? There are probably numerous expenses that could be trimmed. We all know that trimming expenses improves the bottom line which hopefully, improves the chances the banker won’t be so tight fisted.

2) Are you billing once a month? If so, change to billing every two weeks or better yet, weekly. Also, you may be able to change the terms of your sales to a15 day billing cycle vs. 30. And, review all accounts receivables once a month. As soon as they flop over beyond a current status, have your accountant make a phone call. If they get beyond 60 days owing, send out a letter followed up two days later with another phone call. Shortening receivables will not only improve cash flow, but you’ll also increase the look of your financials which will help your banker justify that needed loan.

These are tough times that require a disciplined approach to all financial matters. The above two suggestions may help your company get the financing you need.

Next Week’s Blog: Cash Management:

Wednesday, December 15, 2010

Choosing the Right Banker

What should you look for when choosing the right banker for your business?

1) Any banker that is worth his/her salt needs to have a firm understanding of your business. This knowledge includes a) having a good understanding of how you make money, b) it includes knowing who your main competitors are, c) knowing what differentiates your service or product offering from these competitors, and d) what your plans/objectives are for the future.

2) A good banker should be aware of all the services their bank offers and which ones may be of benefit to your immediate efforts. Additionally, they should make you aware of services they offer that may help you in the future.

3) They should be a strong advocate for you with their higher ups when you need a loan or easing of the bank’s credit requirements.

4) They should carefully review all of your quarterly statements that you’ve provided to them and let you know when they see potential problems with things like accounts receivables, debt to equity ratios, aging inventory, etc.

5) Finally, they need to visit your business every 3 months or so to discuss where they see the market heading and keep you apprised of any new developments at their bank. Hopefully, they’ll treat you to lunch afterwards.

A good banker can become a trusted advisor and helpmate in the successful running of your business.

Next Week’s Blog: Improve Your Chances for Bank Loans:

Wednesday, December 8, 2010

Resign Accounts?

Yes, you read the title of this blog correctly. You may need to resign some of your accounts. Why would that make sense? Due to the simple reason that certain accounts may cost you more than they are worth.

If you look carefully at what a customer actually costs your company, you need to take into consideration the following expenses:

1) Outside sales force. Outside sales reps may be spending their time on small accounts when they should be spending their time on accounts that are potentially far more profitable to your company. But, if you try to limit the size of accounts that the sales reps can bring in, you’ll receive resistance. Sales reps will generally go to points of least resistance and oftentimes small accounts are easier to crack than larger accounts. I faced this issue with one of my companies. When I finally bit the bullet and resigned over 30% of my company’s accounts and refused to accept new business that didn’t rise to a certain level, there was wailing and gnashing of teeth from my sales reps. However, that situation turned around within 2 months and my company’s profitability soared and my sales reps made dramatically more commissions.

2) Customer service. Customers cost money to service and generally that service cost is hard to price accurately. For example, you have employee costs, equipment costs like phones, desks, computers, etc., you have rental space costs for those incremental employees plus perhaps additional warehouse space, and finally you have managerial/supervisory costs. When you accurately add everything up, you’ll get a fair assessment as to the real customer service costs for each of your customers.

3) Strategic direction misapplication. You are President of your company. That title mandates that you, in conjunction with your senior staff, have to set the strategic direction of your company. If you’ve got numerous small accounts, no matter how you would like otherwise, you’re going to be sucked into spending time on those accounts. You’ll be involved with decisions about management, space, equipment, etc. Any strategic misapplication of your time means you’ll be spending less time on those strategic issues that have a more meaningful impact on the success of your company.

So, the upshot of this blog is look carefully at your accounts and make certain you are accurately assessing their costs. If you decide they are costing more than they are worth, then step up and resign them in a professional, well thought process. After you’ve made this difficult decision watch you revenues and profitability grow. And, isn’t that why you’re in business?

Next Week’s Blog: Choosing the Right Banker

Wednesday, December 1, 2010

Undercapitalization, a potential death blow to your business

Undercapitalization is without a doubt the number one reason businesses fail.

If you’re starting a business, you need to carefully make projections on anticipated revenues and anticipated expenses. And, if you’re like the vast majority of entrepreneurs you will overestimate revenues and underestimate expenses. Therefore, after having been brutally honest (and I do mean brutally) with your projections, you need to double the amount of capital your projections show you’ll need. I’ve never known a businessperson that was sorry he had too much cash on the balance sheet. However, I’ve spoken with numerous business people who rued the day when they ran short of money. And remember, approximately 30% of all businesses that go broke had income statements that showed they were making money! That’s right the books may have shown they were “profitable”, but profit doesn’t mean positive cash flow. Money tied up in inventory or accounts receivable can’t be used to make next week’s payroll.

Now if you’re presently in business and making a decent profit, congratulations. But, before you start patting yourself on the back, remember the old saying “those whom the gods will destroy, first make overconfident”. Overconfidence can seduce you into being overextended. You may take on too much debt because business is good and you’re convinced you can cut a fat hog by wildly expanding. Then, guess what happens? The economy goes south and you find yourself over-leveraged and in trouble. Most savvy bankers won’t let your debt to equity go beyond 2 ½ to 1 or at the very most 3 to 1. The sad facts in today’s lending environment are you’re lucky if your bank will loan you any money regardless of whether or not you’re profitable. Now, if you are one of the lucky businesses that can get a bank loan, don’t let your debt to equity exceed 2 to 1. It has always been true…..CASH IN BUSINESS IS KING! So, be conservative, you won’t be sorry.

Next Week’s Blog: Resign Accounts?

Saturday, November 27, 2010

Another 3 techniques that help the new sales rep hit the ground running: (Part 2)

Here are 3 additional sales training techniques that adequately prepare the new sales rep to hit the ground running:

1) Have your new sales rep write two telephone and email scripts that requests an appointment. In today’s business environment, the vast majority of buyers will only see a sales rep by appointment and with voice mail it can be very challenging getting that appointment. Therefore, it is imperative that this telephone and email script be short, sweet and powerful without sounding pushy.

2) Have the new rep write answers to 4 tough telephone objections from both the prospect as well as their “gate keeper/screener”. Objections like (a) “I’m not interested”, (b) “I already buy from a competitor that I’m happy with”, (c) “Send me information in the mail”, (d) “I’ll leave a message for Mr. Jones, Smith, etc.”

3) Have your sales rep write several benefit statements to be used when making sales calls. These benefit statements need to explain to a prospect why he/she should continue listening to what your sales reps has to say. The image your sales rep should have is imagining he’s in a cage with a hungry lion and that lion is going to eat him unless he feeds him meat to chew on. That “meat” is benefits that the prospect may be interested in.

Now all of these activities (part 1, 2 & 3) will take a week to accomplish. So, you’ve lost a week of sales call activity. However, this one week loss is nothing in the overall scheme of things. Because once the rep is armed with knowledge and sales techniques, he/she will have a far greater likelihood of being successful and your company will get a lot more business from them.

Next week’s blog: Undercapitalization; a death blow to your business