In this week’s issue…
5 Disciplined Cash Measures
295 words, total reading time <2 minutes
For years, we have heard "Cash Is King". And, we have observed strong cash companies have less chaos, fewer emergencies and fire drill interruptions to the business. So How Do I Manage Cash Better?
Here are 5 immediate actions to take:
1. Be proactive in making requests for payment (RFP). Every day missed (asking for money) is a potential cost to the business. This has to be a drumbeat habit of the business. Put a truly great employee on this. Get payment requests out on time every time. And follow up to collect.
2. Have favorable terms ... for who? For you.
Get pre-wires paid ahead. Get 50% with projects over $10K and schedule the second payment 45% on a date not on an ambiguous event like significant completion.
An agreed date can be administered by your admin through a calendar; unpredictable events cannot. Oh and this leaves only 5% to collect at the closing.
3. Keep inventory to assigned to projects inventory only. In a just-in-time business we often see over 100 days of inventory kept regularly. The more inventory you keep the higher the risk of obsolescence and waste. It's like the rule of gravity.
4. Propose new business at great margins. Profit is the forbearer of cash. Eliminate discounting; make sure labor mix is over 30% and price parts at 6% to 8% of the job consistently. And,
5. Look to increase volume in every way possible. Selling more to the same client; additional categories and higher end gear. Find more clients, while tough, it is paramount to growth. Find a new trade partner and his annual volume is repeatable and highly profitable.
Try these 5 actions and you will take the cash burdened off your business. Next week, dealing with "fake" cash.