Cash Flow Overview

Cash Flow

Cash Flow Overview

Cash Flow

Perhaps the single most challenging issue for small businesses today is the ability to generate a positive cash flow.

A business’ ability to bring in more money that it spends in delivering its goods and/or services to the market on an on-going basis seems simple enough but yet in reality, we all know better.

It just is not that easy today.

While this SBA article on developing a cash flow analysis walks you through the accounting concepts and cash flow statements in an excellent and succinct fashion, let’s also touch on some problem points specific to the landscape market not addressed in the SBA write up.

When your revenue won’t cover your expenses required to deliver your product and/or service, there is a possibility your pricing is too low and/or costs are too high.  Or, could it be that your volume is too low and you just need more revenue?  Perhaps it is the seasonality of your business may cause a cash shortfall every year at the same time as your season ramps up.

Whatever the case you need to think it through, assess, and if needed, get another head involved, such as an accountant, consultant or a savvy business friend.  The most important thing is to check your assumptions as you go through the process and be brutally honest with yourself.  If you have real idle capacity and you are looking for things to do two or three days a week, you probably have a volume issue.

Why is your volume so low?  Could it be your pricing and/or marketing (for material on these topics go to the Marketing section of the site under Grow).   Are you really communicating your value proposition clearly so as to get your price?  Are you really managing expenses, investments, and financing decisions optimally?  Again, conduct an honest assessment but make indelible notes on your assumptions and if they keep proving wrong, you know what you need to do.  The real definition of insanity is to keep assuming the same things and assume you will get different results.

Operating activity areas to focus on to improve cash flow may begin with collecting your money, and all of it, faster and getting longer payment terms with your vendor base.  Even if it just a timing issue, and you can cover all the costs eventually, it can still cost you money in interest, service charges, lost payment discounts, credit worthiness and more. When you know a job will be slow pay, work with your vendors before hand for special job terms. Your vendors maybe even able to work out ways to help encourage your customer to pay on time, for example conducting a notice to owner, or other notifications to secure you and your vendors interest.

Investing activity areas to focus for most contractors will include vehicles, equipment and perhaps property.  With assets in this industry, the key is to have a high utilization rate on equipment that is well matched to the job.  Don’t pay for metal, paint and/or horsepower you don’t need.

Financing activity focuses on money needed to finance your business and it can get complicated and costly.  Get your accountant or financial advisor involved if you are looking into financing options.

In closing, the importance of cash flow cannot be overstated and the resources dedicated to this topic are vast and substantial.   If you want to explore more, a good place to start is the Cash Flow section of the Resource page.

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