Managing cash flow is one part know-how and two parts discipline.
Whether you have just opened your shop or have been in the game for years, you and every other owner have one thing in common: the doors will not stay open if cash is not flowing in.
All shops need to keep the flow steady; however, the ultimate goal is usually to increase it. A startling number of business owners do not understand the basics of managing cash flow. Here is a secret—managing cash flow is one part know-how and two parts discipline.Okay, maybe it is not really a secret, but we have compiled the following five tips to help you structure a cash flow management system. By sticking to it, you are that much closer to keeping your shop running in the black.
#1: Budgeting is Essential for Managing Cash Flow
Managing cash flow starts with knowing the numbers that make your business run and monitoring them regularly. How much do you spend on utilities, rent, lease, or a mortgage, supplies, payroll, and marketing?
If you have not already, make a list. In the case of fluctuating costs, use the high-end numbers. Also, do not forget to include yourself in the payroll number. After all, you are in the heavy-duty repair business to earn a living, right?
Once you have a list of hard costs, you will know your break-even point—the amount of money you need to bring in every month to keep the doors open. Use that figure to make a budget, then stick to it. Better yet, tighten it up instead of taking past figures for granted.
Look for areas of overspending and cut back where necessary. Also, be sure to budget in a cash holding account. It is like a savings account for your business. Set aside a certain percentage—10 percent, for example—of every dollar that comes in, so you will have a cash cushion when inevitable lean times hit.
#2: Extend Payables and Shorten Receivables
In general, it is a sound business principle to treat customers the way you would want to be treated—except when it comes to receivables and payables. You want customers to pay you ASAP, but you want to take your time
paying flexible suppliers.
Let’s break that down: first, not collecting on invoices quickly may create the illusion of profitability, but it keeps your shop’s prosperity limited to paper instead of reality. That is why it is a good idea to limit payment terms. Keep them as close to a 30-day net as possible, extending to 60 days for a few select customers. Additionally, offer incentives like discounts or a small freebie to customers who pay immediately.
Second, extending your payables as far out as possible lets you work with the cash as long as possible. If suppliers allow 30-, 60-, or 90-days interest-free, take advantage, but always pay before late charges or interest kicks in. Remember that everyone is playing the same managing cash flow game.
Maybe some of your suppliers offer discounts for early payment, so be strategic about when you pay invoices.
#3: Marketing for More Sales and Cash Flow
Advertising is often a line item that gets cut when funds run short, but marketing is essential for managing cash flow. Word of mouth from existing customers is valuable. So is creating a website or advertising through social media. Alternatively, getting your shop’s name out in front of a mass audience through newspaper, radio, television, and billboard ads may seem old-fashioned, but it can help you secure new customers. That is why it is crucial not to cut advertising in the name of managing cash flow.
Marketing to existing customers is cheaper than advertising to potential customers, but it is an ongoing task. Stay on top of existing customers’ maintenance and repair schedules and anticipate their needs. Consider extending your services to meet those needs and make them aware that your shop can make their lives easier. All of it works toward increasing sales to existing customers, which increases cash flow.
#4: Delegate: Cash Flow Management is a Team Effort
Running a shop is a big job, and you cannot do it all single-handedly. Sure, you should oversee managing cash flow, but delegating makes it easier to do your job more effectively. Appoint a trustworthy member of your team to track aging invoices and collect on them. Put someone else in charge of monitoring the budget and notifying you when cash flow exceeds your break-even point.
#5: Make the Most of Technology
Much of the advice on this list can be consolidated in this final tip: manage cash flow by making the most of technology. Cloud storage, accounting programs, and mobile devices let you wear many different hats without losing control of your business or your mind. Look for software solutions that keep track of clients’ service and purchase history, which makes for practically automatic ongoing sales and service. Plus, it takes on cash flow management tasks like monitoring outstanding invoices and inventory, so cash flows in before it flows out. | WA
This article originally appeared on Fullbay’s blog at www.fullbay.com/blog/managing-cash-flow/.
FullBay is a heavy-duty repair shop management platform that enables shops to receive repair requests, invoice customers and everything in between. For more information, visit www.fullbay.com.