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A Newsletter from Profit Point Consulting
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Quotable Quote:
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"Happiness is a positive cash flow.'"
~ Fred Adler
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Feeling a little strapped for cash in this economy?
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Check out our blog for plain-talk advice on how to improve your bottom line.
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Follow us on Twitter!
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Look for tips and "tweets" from Anna Masker
a.k.a.
money_finder
Go to www.twitter.com
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Profit Point Expands Services
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Standby
Executive Team provides businesses the value of an executive team at a
fraction of the cost. Whether it is working through a legal issue,
finding ways to reduce costs, using your technology to improve
operations or building your brand's awareness, we can help. Go to website>>>
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Greetings!
The
first lesson that most start-ups learn is the difference between profit and
cash flow. Even established businesses can lose sight of cash flow when times are
good, since high profits tend to generate sufficient cash.
It takes tough times
like these for businesses to take a good hard look at how cash is used and
pumped into the business. We'll look at
how to get cash flow back on track, shaking your own money tree to find cash
you already have in your business.
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To find money in your business-- staple yourself to an order
Cost cutting is a great way to free up cash, but it's not
the only way. If you really want to find money, you should look at the whole
process from the time an order is taken to the time that cash is collected. This
is called the order-to-cash (OTC) cycle.
When we work with clients we like to "staple" ourselves to
an order to see how cash is flowing through the business. We find that when look
at cash flow as a process, it makes it easier to see where cash is tied up.
Below is a typical order-to-cash cycle. While this may look
like it only applies to manufacturing businesses, service businesses follow
along the same cycle. Their "Raw Materials" may take the form of training of
employees, or pre-sale research, or hiring contractors to prepare system prototypes.
Their "Build" process includes actual consulting work or services they provide.
"Delivery" includes final reports, system implementations, etc.
We'll take a look at each of these steps and give you a list
of actions you can take to get your cash flowing again.
BUY RAW MATERIALS:
- Reduce inventory quantities to the lowest level possible without sacrificing service.
- Require a pre-payment or first installment to purchase materials or hire contractors.
- Renegotiate vendor contracts for discounts, smaller minimum quantities and extended payment terms. Push payment terms out as far as possible, preferably after you get paid by your customer.
- Evaluate current warehouse facility, is it being used to capacity? Consider downsizing space.
PROCESS ORDER:
- Review how many people it takes to take an order or outline project specifications
- If it is a time-intensive process to detail the order (as in service businesses), is there a way to shorten the cycle?
- Run credit checks on customers for large orders, establish and monitor credit limits
- Review order accuracy. Are proper purchase orders secured, quantities correct, and ship-to addresses verified? These can slow down the collection process in the end.
BUILD ITEM:
- Reduce the amount of finished goods inventory you need to carry.
- Reduce production time, or implement more frequent installment billings as work progresses.
- Pull out your P&L and look at overhead costs for areas to reduce. Focus on eliminating costs that do not have a direct impact on customer satisfaction or increasing sales.
- Can part of the building process be outsourced to vendors who can produce the item more quickly and efficiently?
- Take pre-paid items like insurance and modify contracts to be small monthly amounts vs. lump sums.
- Review equipment you use to produce product/service. Leasing vs. buying will not tie up as much cash in assets.
- Sell any unused equipment, review obsolete inventory and sell if possible.
DELIVER:
- Ensure shipment accuracy which will cause payment delays or short-payments.
- Simplify delivery options (ship full pallets, or for services: deliver final product remotely.)
- Change shipping terms to FOB shipping point vs. FOB delivery, to issue bills sooner.
- Economize on delivery options, (i.e. train vs. truck, ground vs. air) to reduce costs.
- What are order fulfillment rates? Do out-of-stocks delay shipments and payments?
BILL CUSTOMER:
- Increase frequency of billing (e.g. from monthly to weekly)
- Shorten terms: instead of 30 day terms, reduce or make it "payment upon receipt."
- Offer 2% discount for prompt payment. (This may be far less costly than missed sales opportunities if you don't have cash.)
- Ensure billing accuracy: correct purchse order, address, and ensure the invoice and documentation comply with customer requirements.
- Establish and enforce late-payment penalties.
- Use electronic billing vs. postal mail.
RECEIVE PAYMENT:
- Follow up promptly on overdue invoices
- Use credit cards or Paypal accounts as forms of payment (understanding that fees can be as high a 7% for doing so)
- Consider factoring invoices if all else fails. This can be an expensive alternative but may be necessary to generate cash.
Using a combination of any (or all) of these tips will help you to identify and free up funds before you have to turn to a bank for a line of credit or loan.
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Profit
Point Consulting works with small- and medium-sized businesses whose needs
extend beyond basic accounting and tax planning - businesses that want to
increase profits, lower costs, get better control over their financials, and
make more money. As
part-time CFOs, we give you a better handle on your costs and cash flow, so you
can make better pricing and capital investment decisions - and we do it in an
approachable, easy-to-understand way.
To find
out how our experience and insight - along with our forward-looking,
fresh-thinking approach - can help you, please contact us for a no-fee
consultation.
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