Show Me the Money
Let me pose this question. Have you ever had a good net profit month yet you have less cash in the bank? How is your cash position leaving 2008 compared to when you entered it? You need to know because someone will have to “Show you the money”. With credit for business tightened up almost completely you will have to rely on yourself for the cash your business needs to operate, cash that will take you through any losses you may endure in the first quarter of 2009. Want to know where your cash is?
Look for asset purchases that you made during the year. Copy machines, vehicles, computers, phone systems, etc. Could you have found more attractive financing or equipment leases that would have kept your cash in the bank?
Look at your receivables. Have you become the bank for your customers? The Fed won’t bail you out like Citigroup. You need to quickly determine what has become uncollectible, set up the reserves, and start working on getting your money back in 2009. You can take it into income then. Do you have customers who are constantly late in paying their bills? Are the margins and volume enough to justify the relationship? If they aren’t “Fire them”. Look at your 120+ days, 90 days, and 60 day receivables and add them up. You may put a discipline in place to look at 20 day plus receivables to head problems off at the pass. Here’s a hint, if you do cut off a customer please share it with the sales people who take their orders.
Look at your payables. Are you paying too quickly - like by return mail? Sign ALL the checks that go out of your business and YOU feed them to the mailman.
Where are your inventory levels? How do they compare to the beginning of the year? It is not enough just to review your total days supply of inventory. You need to look at individual items, particularly your best sellers. Have big sellers begun to slow down. Benchmark levels for all of your high volume products and identify items that you don’t want to reorder. If you have automated inventory systems change the levels on your computer as soon as possible. Who does your ordering? Take control at least for the next three months.
Is your “Overtime” in “Overkill”? Who authorizes it and who monitors it? This is your employee’s way of giving themselves a raise. Clocking in 5 minutes early and clocking out 5 minutes late can amount to thousands of dollars.
Do the math:
10 minutes x 5 days/wk x 52 weeks = 2600 minutes or 43.33 hours @ time and a half
43.33 hour x 1.5 = 64.5 hours
multiply 64.5 x the hourly rate x the # of employees and tighten it up.
Cash is the life blood of your organization. I hope this will assist you in putting YOUR money back into the bank.