The definition of Cash Flow is “The excess of cash revenues over cash outlays in a given period of time, not including non-cash expenses.” In layman’s terms, it simply means not only having more cash coming in than going out, but having that “excess” cash coming in when you need it!
For example, if you have $10,000 in revenue coming to you on the 20th of the month and $8,000 due in payables on the 15th, including payroll, what do you do? Do you simply tell your vendors and employees, “don’t worry, you’ll get paid when I get paid” and expect them to be understanding? Sure, you’ll have a few understanding people, but DO NOT rely on people understanding your cash flow issues! Instead, take the time to create a cash flow system to eliminate the inevitable problems that come from paying late, i.e., employees quitting, vendor credit cut offs, bank overdraft fees, poor relations, credit score reductions and the list goes on and on.
If you’ve got bank lines of credit and can pay all you’re bills on the first of the month, that’s great and I’m happy for you, but I can bet that in the beginning you had to be very savvy with your cash flow to convince the banks to lend to you. Kudos and respect to you! But , remember, borrowed money is the most expensive money.
Let me just touch on my Top Ten free, time tested Cash Flow Tips that have served me well in 25 years in this great janitorial industry. Remember, it’s all about having actual cash on hand when you need it! It’s not easy, but it’s not hard, just have a plan!
- ESTABLISH CUSTOMER TERMS: DO NOT start an account and not know when you’ll get paid. My written terms were always billed on the 1st of the month, due on the 15th of the current month for the whole month. If they couldn’t do that, I’d bill them 2x per month, the 1st– 15th due on the 15th and the 16th -30/31st due on the 30th. Hear me, establish terms!
- ESTABLISH VENDOR TERMS: Once you’ve established terms with your customers, get with your vendors. If you know that customer payments come in on the 15th and 30th of each month, then set up payments with suppliers due on the 16th and 1st of each month with your vendors. Vendors WILL WORK WITH YOU if they simply know they can count on a payment date. Car payments , cell phones, suppliers, even rent landlords can all change due dates for you.
- ESTABLISH COMPANY BUDGETS: Know exactly what your numbers are. What’s your total monthly revenue and expenses each month? When are payments coming in and when are bills due?
- ESTABLISH A PERSONAL BUDGET: It’s true that “ the eye is never satisfied”, but have the discipline and restraint to live within your means.
- INCREASE REVENUE: No brainer, new customers equal more $Revenue. Continually be looking for more customers and have multiple bids out at the same time!
- REDUCE OVERHEAD and INVENTORY: A $2000 a month office requires $7-10,000 a month in revenue to pay for it. I’m not saying don’t have one, but customers don’t come to your office, so make sure it’s a “need” to have and not a “nice” to have. Work from a home office until it’s impossible any longer . Also, have a ”just in time” inventory on hand in your warehouse. Don’t have $1000 in floor wax on hand if you only use $200 a month. Use the other $800 to pay bills.
- DON’T FINANCE IT: Don’t finance a $4,000 new floor autoscrubber for 24 monthly payments and a total pay out of $5800, if you can buy a used one for $1500 cash that does the same job! Use your head!
- EDUCATE YOURSELF: Do internet searches on cash flow tips, read books on it, read blogs on it, then implement it!
- SUPERVISORY EMPLOYEES MUST PRODUCE REVENUE!: Make sure all supervisors, managers, etc., are producing monthly revenue! They should be filling in, cleaning buildings, delivering supplies, training new employees, solving problems, keeping costs down, etc. ! They should be the hardest working and most productive employees in your organization!
- REVIEW IT: Review your cash flow daily, weekly, monthly and make adjustments accordingly! Do it this month and the next and next and so on. BE DISCIPLINED FOR CASH FLOW SUCCESS!
Follow these simple guidelines and watch your Cash Flow in the right direction and most important, when you need it!