Are you paper rich but cash poor? A business can be profitable on paper, but bankrupt in real life – if you don’t manage cash flow effectively.
Without cash, a repair shop will inevitably shut down, regardless of how profitable it looks on paper. You can be “rich” in accounts receivable and inventory, but cash poor if these assets are not convertible into cash to meet current obligations. In fact, cash is the only asset a company needs to stay in business.
All of your expenses – materials and supplies, utilities and wages, for example – add up to a steady outflow of cash that must be backed with sufficient income or reserves to meet these obligations.
So, how do you ensure a steady inflow of cash? Strategies that have worked for other independent businesses include:
• collecting on accounts receivable
• borrowing
• decreasing assets
• offering customers a modest discount for full payment within a limited time
• maintaining strict control over inventory
• making installment payments on equipment rather than paying in full
• accepting credit-card payments from customers
Above all, make sure you continually forecast your shop’s cash needs. Estimate incoming cash based on sales volume and customer payment histories, and spend accordingly.
Courtesy TIRE REVIEW.
