Whether you’ve just opened your shop or have been in the game for years, all businesses have one thing in common. The doors won’t stay open without cash flowing in. What’s more, all shops have to find a way to keep the flow steady with increasing it being the ultimate goal of cash flow management. Yet, a startling number of business owners don’t understand the basics of managing cash flow. In truth, there really is no secret to it. Managing cash flow is one part know-how and two parts discipline. Use these five tips to structure a cash flow management system. Then, commit to sticking to it to keep 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? Make a list and, in the case of fluctuating costs, use the high-end numbers. Also, don’t forget to include yourself in the payroll number. After all, you’re in the heavy-duty repair business to earn a living, right?
Once you have a list of hard costs, you’ll 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’s like a savings account for your business. Set aside a certain percentage—10 percent, for example—of every dollar that comes in, so you’ll have a cash-cushion when inevitable lean times hit.
2) Extend Payables and Shorten Receivables
In general, it’s a sound business principle to treat customers the way you’d want to be treated—except when it comes to receivables and payables. You want customers to pay you ASAP, but take your time paying flexible suppliers. Let’s break that down:
First, not collecting on invoices quickly gives the illusion of profitability, but it keeps your shop’s prosperity on paper instead of flowing. That’s why it’s a good idea to limit payment terms. Keep them as close to 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 you can lets you work with the cash as long as possible. If suppliers allow 30, 60, or 90 days interest-free, definitely take advantage. However, always pay before late charges or interest kicks in. Keep in mind, 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. Alternatively, getting your shop’s name out in front of a mass audience through newspaper, radio, television, and billboard ads brings in new customers quicker. That’s why it’s crucial not to cut advertising in the name of managing cash flow.
On the other hand, marketing to existing customers is cheaper than advertising to potential customers, but it’s an ongoing task. Stay on top of existing customers’ maintenance and repair schedules and anticipate their needs. Also, 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: Making Cash Flow Management a Team Effort
Running a shop is a big job, and you can’t 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) Making the Most of Technology
Much of the advice on this list can be consolidated in this final tip: managing 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. The best technology for shops is heavy duty repair software that lives in the Cloud and connects to software and apps you already use. Fullbay software, for example, helps with budgeting, invoices, ordering stock, and it keeps 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. Fill out the form below to give Fullbay a try and see how easy managing cash flow can be.