Cash is queen

Cash is queen

By Laurie Tarpey

Well, we’re woman-owned, so we need a twist on the old “cash is king” expression.

ENC is growing, which is a fantastic thing to say about your company anytime, but which makes us especially grateful to say in these challenging economic times. How does a small but growing services company manage cash needs?

  • Start with a revenue forecast.
  • Develop an expense and spending budget. What spending is required to support the revenue plan? To foster fiscal discipline over everyone’s thinking about spending, budgets are detailed, especially in the major spending areas, and reflect the input of the operational people.
  • A budget works if people are required to follow it. Require written approval for purchases, and ensure they are in the budget, or recoverable through billings to clients. Periodically contrast the budget with actual expenditures, and ensure the differences make sense or inspire corrective action.
  • Get customer invoices out as soon as the company is contractually allowed. Speaking of contracts, structure terms to ensure the company is allowed to invoice sufficient amounts in advance of, or close to, major outlays for payroll and outside costs. And keep a close eye on the receivables aging. Call the customers who are late and remind them, nicely, that payment is due.
  • Consider obtaining a line of credit with a bank. Get it before the company needs it, when you are in a stronger negotiating position. If you are growing, you will likely need to invest in people a little more quickly than they can become fully billable and their cost is recoverable through the receivables from the revenue they help generate.
  • A word on banks: talk to more than one to explore credit line possibilities. Your long-time bank for your checking accounts might not offer the best terms.  Interview several banks before deciding on where you’ll apply for your line. Apply to several, contrast terms offered, and negotiate.
  • An annual forecast and a budget are important, but they won’t reveal exactly when cash is coming in and going out; you might be flush one month and tight the next. Prepare regular cash forecasts looking out as far as you reasonably can. Detail the incoming and outgoing cash by week or month. A regular examination of the timing of cash inflows and outflows can be highly motivating in converting pipeline to earned revenue.

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