Build a Stronger Cash Position
There's a lot of uncertainty in the market right now, and while no one on our team is an economist we do know that the economy is always cyclical. It doesn't stay up forever, we always see years of expansions and recessions just with varying severity. It is almost certain that we'll see a correction, possibly in the next 12 months.
This week's email is not a doomsday prediction and I don't want you to be overly anxious about what the market is going to do next. The economy will do what it does, but our best course of action is always to focus on the things we can control.
While we can't control the cost of goods, gas, or labor, what we can do is build a stronger cash position so that our companies are healthy financially if a downturn comes. To do it, I recommend companies take three steps:
1. Put company expenses on a credit card and Accept credit cards. The first benefit of this is it gives you an extra 30 days to pay for purchases. In addition, you can earn points on purchases and have an extra layer of fraud protection. Credit cards also allow you to distribute purchasing power throughout your team, and control it with spending limits based on the position and need.
When doing this, it's very important to pay it off each month and never carry a balance. The interest rates on credit cards are so high, and they shouldn't be used as a loan.
Money today is better than money tomorrow. The transaction fees are worth it on small purchases because they make it easier for your customers to do business with you and pay promptly. Pay the 3% transaction fee and then put the cash to work for you. Many industry-specific software options allow for client portals where customers can pay their bills easily online.
Whatever you can do to make it easy for your clients to pay you will reduce the average days outstanding on your accounts receivable and improve your cash position.
2. Bill and collect quickly and have one person own collections. Dedicating one person to track it all keeps things from slipping through the cracks. Discuss outstanding balances as part of the sales meeting so the whole team understands where the company is at and can help be part of the solution.
3. Improve your cash position before you need to. The best time to solve a cash flow problem is before it happens. If you have cash reserves, now is the time to have a conversation with your bank to improve your cash position even more. Also, get in the habit of producing a two-week cash forecast so you can stay ahead and plan accordingly with your cash. Be sure to note: upcoming payroll, credit card balances, accounts receivable, accounts payable, and deposits you are expecting.
Taking these three easy steps can help your company prepare for whatever comes next, as can training your team and looking for the most efficient way to operate.
Have questions? Sign up for our free event next month, where Marty will spend an hour answering any questions you have and giving his advice for landscaping companies.
Have a great week!
The Grow Group