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I was having serious cash flow problems at certain prime growth situations in my business. I was struggling because certain customers constantly did and still don't pay on time. This is a fight you will never win. Especially if your business consists of mainly medium income residential maintenance.

To avoid this problem I just decided I needed to have 1.5 month's business expenses set aside when I wanted to add an additional employee. As the owner I can wait on some checks, my employees living paycheck to paycheck cannot. Having this cash on the side that I always reimburse solved my cash flow issues immediately.
 
Trying to get 500 customers to pay on time, every time is a lot more difficult than 5 customers; that speaks a lot to cash flow.

I have more answers if you want Mark.
I would disagree with that statement. Change you billing terms and getting 500 auto charged to a credit card is easy. Odds are the "5" large accounts are commercial, or town homes and you would jump though their hoops. One of the board members is out of town, or they have to have a meeting. I have heard a whole list. Besides. you could collect 4 of 5 and you still would have 20% out on the books.
 
I would disagree with that statement. Change you billing terms and getting 500 auto charged to a credit card is easy. Odds are the "5" large accounts are commercial, or town homes and you would jump though their hoops. One of the board members is out of town, or they have to have a meeting. I have heard a whole list. Besides. you could collect 4 of 5 and you still would have 20% out on the books.
Okay...but sheer numbers would prove 500 is harder than 5. And your example of using a credit card would solve the "cash flow" problem. But try and get commercial on credit card...not sure but I would think most commercial would cut checks. My commercials pay on time...like clock work. So...your experience must be different than mine.
 
Okay...but sheer numbers would prove 500 is harder than 5. And your example of using a credit card would solve the "cash flow" problem. But try and get commercial on credit card...not sure but I would think most commercial would cut checks. My commercials pay on time...like clock work. So...your experience must be different than mine.
Mine is not much different. This was a hypothetical situation. In my experience anyone with 500 commercial accounts probably doesn't have a cash flow issue. 80% of my commercial accounts pay on time. 20% are slightly late. It changed every month and I've heard every reason. The ones that do pay "on time" use every bit of net 30 to pay or greater. Sometimes we sign their contract and its net 45 or 60. They do pay "on-time". 59 days after they got the invoice which was 1-4 weeks after I did the work.

Speaking in terms of residential, getting 500 customers to agree to an auto payment where you would be paid with in 5-7 days after completing your service--- that's easy

What I will agree with you on.

Tracking 5 is easier than 500
Invoicing, printing,folding, stamping, mailing 5 is much quicker and easier than 500
Inputting 5 payments in QB is easier than 500

But none of those really have anything to do with cash flow other than the cost of stamps and the half day it takes to produce those invoices.
 
I wouldn't take either. I'd rather have a combination of the two, as to not place all my eggs in one basket. Each has an advantage and a dis-advantage. If you know those and how to take advantage I those an avoid the dis advantages you can build a pretty reliable income
 
No way. If one of those 5 dumps you, thats a huge dent in your pocket. 500 is more of a headache, but more of a steady income.
Now this ^^^^^^ is a very intelligent post.

Not your fault as newguy totally missed the point, but you are absolutely correct and this thread is now off topic. Sort of.

Lose 20% of your business in one customer getting rid of you and you will have cash flow issues. So I guess we are back on track now............sort of.

seabee continues to give great advice, but until the OP answers some questions, this thread is going nowhere.
 
No way. If one of those 5 dumps you, thats a huge dent in your pocket. 500 is more of a headache, but more of a steady income.
Agree with you here. Can't keep eggs in one basket. Commercials will jump ship for 10 bucks. Some companies its a policy to go with low bidder regardless if you did a great job last contract. I keep 90 days cash on hand. That means if cash flow stopped today I could cover operating expenses for 90 days. Think of it as corporate rainy day account and any company with employess needs that kind of safety cushion. Now you need to deal aggressively with slowpays. I found prepay to be most effective. Late fees and other threats don't mean much to those people. Its simple, no pay no service. Send out a blanket letter outlining new terms. Send it to your problem people. If they bail they saved you the prob of dumping them with a balance owed. If you need to trim payroll after the dust settles than so be it. It sounds like the OP is hand to mouth himself and may need to look in the mirror for savings.
 
Now this ^^^^^^ is a very intelligent post.

Not your fault as newguy totally missed the point, but you are absolutely correct and this thread is now off topic. Sort of.

Lose 20% of your business in one customer getting rid of you and you will have cash flow issues. So I guess we are back on track now............sort of.

seabee continues to give great advice, but until the OP answers some questions, this thread is going nowhere.
Easy with accusations...I'm sure you cannot read my thoughts.

Try again Marky.
 
The OP said "cash flow issues" , not profitability issues

Granted he might not know the difference between the two.

If he truly has a cash flow issue. He may or may not be profitable. But his current problem is caused by him having to pay out his labor and bills before he is paid. Solutions are

1. Get paid sooner from multiple methods
2. Save money in an account to help with float time
3. Reduce amount you pay out
4. Change the terms of when your payouts are due

If he has a profitability issue and is having cash flow problems because of not being profitable

1. Don't charge enough
2. Charge enough per hour but are in efficient
3. Bid jobs too low
4. Have high direct costs
5. Have too high over head
This is the correct answer to the OPs question. I would also set up a line of credit with your bank.
 
This is the correct answer to the OPs question. I would also set up a line of credit with your bank.
Only if all else fails.

It is a good idea to have one and not need it, sort of like a parachute. But if anyway possible one can avoid dipping into it, I would.
 
This is the correct answer to the OPs question. I would also set up a line of credit with your bank.
Cash on hand is best. Ask Procut about the pitfalls of using lines of credit. When the economy tanked the bank froze his line and converted it into a loan with outrageous monthly payments. Not that he did anything wrong, the bank decided to limit its exposure. That's an instant out of business sign right there.
 
Cash on hand is best. Ask Procut about the pitfalls of using lines of credit. When the economy tanked the bank froze his line and converted it into a loan with outrageous monthly payments. Not that he did anything wrong, the bank decided to limit its exposure. That's an instant out of business sign right there.
Properly managed LOC's are just fine. If you read everything that Procut said, it was more his fault than the banks. He was taking a ton of cash out of the business and not paying down debt.
 
Having a LOC is a great way to bridge the gap during busy times when A/R is large and payables are coming due. Have seen alot of business owners get in trouble when they start funding operations with the LOC.
 
We take out a small line of credit every April, and pay it off by the first of June at the latest.

The biggest issue for us is the initial start up in late March through April. All of our billing is done at the end of the month, so seasonal start up costs such as payroll and any equipment maintenance will eat up any reserve you have left from the winter.

But, by Mid-June at the latest, we have enough cash flow to pay off any early season debts and start socking money away in business savings.

The goal in the next two years is to be able to have an un-touched reserve every spring in order to not have to pull any line of credit out at start-up time.



.......
 
My LOC is my cash account built from profit money! If your profitable you should be socking away cash, every small business runs into cash flow issues eventually, it's how they deal with it that makes the difference.
 
My LOC is my cash account built from profit money! If your profitable you should be socking away cash, every small business runs into cash flow issues eventually, it's how they deal with it that makes the difference.
Yes exactly. We all have tight weeks sometimes. You got to be smart and save as much when you can for problem weeks. I wouldn't even try to be in buisness if I didn't have at least 10% of my yearly sales in the bank. I seen alot of my firends try there own buisiness start up and they haven't made it, they do good work they just can't manage and save extra money.
 
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