Survival Tip: Protect Your Cash Flow

accounting Business Lessons cash flow shop management

Quite often businesses will fail, even during great periods of sales growth, because they didn't protect their cash flow. In the decorated apparel industry, money-management skills are often learned on the job and through tough lessons. It just takes dealing with a deadbeat customer's delinquent account to make you think differently about extending credit to just anyone. Below are thoughts that will help steer you in the right direction regarding your cash flow.


Get an Accountant

Make sure your print shop has someone behind the books that knows what they are doing. Maybe at one point your shop was small enough for you to keep up with everything yourself, but as you grow things get more complicated. Either hire someone outright, or outsource the job to an independent firm. Keeping your books in order and understanding the tax ramifications should be left to someone that knows what they are doing. You'd rather be slinging ink anyway right? Need a referral? Check with your attorney, your banker or a business colleague. You also can check with the Society of Certified Public Accountants in your state.

Cash Flow Isn't Intuitive

Remember, you sold that order of shirts, you printed that order of shirts, and the customer paid you for that order of shirts. That doesn't necessarily mean you made any money. There are expenses, inventory, labor, overhead and other things to consider. Make sure you are protected and doing things correctly. Know your expenditures and make sure that what you are charging accurately reflects your true business costs. Copying another shop's price list can get you into serious trouble, as it may not coincide with what your actual costs are for the same job.

Growth is a Cash Flow Vampire

What sucks up the most cash? Getting busier. Sales are pouring in, and suddenly you are out of money. How did that happen? When you get busier, you purchase more ink, shirts, supplies and labor. If you are paying out before all of the money comes back in, it can get uncomfortable quickly. One of the biggest challenges is keeping your suppliers current while you wait to get paid by your customers. This is one reason why a lot of shops focus on contract apparel decorating instead of selling direct. The garments are customer supplied, and the shop just charges a decoration fee.

Working Capital
This is your No. 1 tool for survival. Working capital is what's left over when you subtract current liabilities from current assets. In layman's terms, it is money in the bank used to pay running costs, expenses and inventory while you wait to finish the job and get paid by your customers. This is the money that you will use to grow. Have a great relationship with your banker. Make sure you have a solid line of credit and that they completely understand your business. When you get busy, or that huge order comes in, your bank should be able to help you. This helps keep that vampire at bay.

Show Me the Money

Get paid. The No. 1 rule of cash flow is to bring in the money. There's an old saying that goes "Nothing happens until something is sold." It is a nice phrase, but it should be amended to "Nothing happens until something is sold - and paid in full." Everyone hates accounts receivables. This is the money your customers owe you. You need to fight to make sure you get your money. This means having standard policies on order entry and sticking to them. The day after you ship, your invoice should go out if you are billing. Don't wait until the end of the week or month to send the invoices out, as that gives your customer extra time and a reason not to pay you sooner. Email the invoice immediately.

Plan for the Future
Take a good look at your business from previous sales and production history. Now look toward the future. Think about three things that affect your cash flow: your collection period, which is the average number of days you wait to get paid; your payment days, or how long you wait until you pay your vendors; and your inventory turn, which is how long your purchased inventory sits on your working capital and clogs your cash flow. Are you keeping metrics based on these points? Getting busier or slowing down? How may this affect your cash? If you are unsure, do yourself a favor and chart this out, and have a frank discussion with your accountant or banker about your company's future.

Cash flow is simple in theory. You want to be using your money wisely and putting it to its best use. For every dollar that you spend on inventory or for every dollar your clients owe you, that is one more dollar that you can't use to pay yourself, your staff or your vendors. Managing this challenge while juggling all the daily efforts of running a busy shop is why it is hard in reality. When in doubt, bring in the big guns.


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