Published December 19, 2011 | 
As I write this I am flying to Jacksonville, Florida for three days of meetings, two of which are at an annual meeting for a large group of contractors. Since our company deals with a lot of home service contractors, there are always a lot of contractor businesses represented at this association meeting. Unfortunately, this year attendance is down from what was anticipated and the culprit, during these economic times, is lack of cash flow. For nearly two years now, I have seen contractors and other businesses throughout America, and the world, continually struggle over the issue of cash flow.
It has always been a problem, but during these economic times the problem is exasperated. Cash flow problems are today at record epidemic levels and companies, small and medium size, are closing their doors because of it.
Besides managerial ineptitude or poor business practices, there are generally three main areas that comprise a company’s cash flow problems:
Cash Flow problems occur when you experience slow pay for the goods or services you have performed. Companies used to expect payment within Net 10 days or Net 30 days, but now payments generally take as long as 45 or 90 days, and can take much longer. I know some very large national companies that take 180 days to pay their vendors. When others do not pay you on time, then it seems reasonable to realize that you cannot pay the people you owe on time, and a vicious cycle begins. Part of the problem exists because of the time and cost of preparing paper invoices, including sending them out and waiting for a check.
Cash Flow problems happen when there is not enough money coming into your business on a regular basis, month in and month out. If you cannot depend on a certain amount of money each month in sales, you will struggle for the cash to pay your employees, overhead, and yourself, let alone make a profit. In an economic climate where your customers are experiencing their own cash flow issues, it is extremely difficult to ascertain what your monthly income will be on a regular basis. Combine that with “slow pays” and you have a recipe for disaster in your business.
Cash Flow problems also occur when you do not change the way you and/or your sales people conduct themselves (sell). The name of the sales game has to change, and in fact, the game itself has to change. People are more informed, more educated and savvy and the old game of “closing until they drop” is no longer effective. Loyalty is not a common place household word any more. Your customer does not have to buy from you and won’t if they are dissatisfied. There are other alternatives and they are choosing these instead of opening themselves to the pressure tactics and other forms of sales as we once knew it.
So, what are some ways that you can begin to solve your cash flow issues? Let me share three, one for each cash flow issue.
You must establish ways to reduce the enormous time it takes from delivery to getting paid. This seems to be common sense, but sadly, most businesses today are not effectively tackling that issue. The average cost of sending a single invoice by mail today is somewhere between $75 and $100. If you are a small or medium size company today and your invoice is under $100, if you decide to process it manually and send it by äóìsnail mail,äó you have just eaten up your total cost and profit. Begin the process of reducing your accounts receivables time by evaluating your invoicing procedures, and then require electronic payment within 48 hours.
Next, you must start a monthly “continuity” program where you build a significant monthly base of income that you can definitely count on. A thousand people paying you $10 every month brings you $120,000 extra income each year. Companies in all walks of life, retail and service, are catching onto this huge revenue source, and you can as well.
The third way to begin to solve your cash flow issues is to “change the game” of how you and your sales people conduct business. People today do not want to be sold, they want a trusted voice or advisor that guides, helps and leads them to a viable solution to their problems. They do not want a sales person “selling them” what he/she wants to sell today. They desire someone who can come along side and assist and advise and solve their perceived and real problems.
Can you solve your cash flow problems beginning today? Of course, however, you will need to “throw the box away” and begin to think in ways you have never considered before. One business owner told me that “he was old school,” and couldn’t possibly begin to adopt these methods to his business. Sadly, he is still struggling with cash flow. Will you?
