{"id":700,"date":"2011-02-14T09:01:01","date_gmt":"2011-02-14T17:01:01","guid":{"rendered":"https:\/\/berkonomics.com\/?p=700"},"modified":"2011-02-14T09:01:01","modified_gmt":"2011-02-14T17:01:01","slug":"when-cash-is-tight-slow-its-flight","status":"publish","type":"post","link":"https:\/\/berkonomics.com\/?p=700","title":{"rendered":"When cash is tight – slow its flight!"},"content":{"rendered":"

We have discussed why<\/em> never to run out of cash.\u00a0 This insight delves into how<\/em> never to run out of cash.\u00a0 There are four basic ways to increase the cash position of a company:\u00a0 inject cash through borrowing or investment, decrease spending or payments on debt, increase efficiency of operations, and increase revenues or advance payments from customers.<\/p>\n

Even before examining the tactics of cash flow management, we\u2019ve got to acknowledge that you never, ever should slip on payment of payroll taxes.\u00a0 The temptation to do so in tight times is tremendous, but the liability for such taxes are personal to senior management as individuals and cannot be waived or negotiated away.\u00a0 I advise all of my companies to use an impressed payroll service, one that takes the taxes from your bank account along with the net payrolls each period.\u00a0 I have a story about this for later in this insight.\u00a0 A close second for the same reasons are sales taxes and income taxes.\u00a0 Both of these take a bit longer for the appropriate authority to move to freeze accounts because the processes of doing so are more involved. But all forms of tax must be paid to avoid catastrophe, if not merely avoid 25% penalties.<\/p>\n

[Email readers continue here…]<\/em><\/span> Let\u2019s examine decrease in spending first.\u00a0 There are several classes of obligations and several types of providers within each.\u00a0 Assuming that the company is not already on the \u201ccash only\u201d list from materials suppliers requiring payment to those just to keep the business flowing, then when cash is tight, payments to ongoing providers of necessary services or products must rise near the top of the list.\u00a0 If there are several alternative suppliers of the same service that regularly deal with the company, then you have more power in lengthening payments to one.\u00a0 Calling vendors when payment is due but missed is always appropriate and will buy the company time and good will.\u00a0 But promises made must be kept, even if the amounts of payment are small.\u00a0 Some people advise that a company make small payments of any size to most all vendors, stating that these will keep the wolf from the door during tough times.\u00a0 I agree, but spreading the cash prevents making significant payments to those vendors needed most for continuing operations, and the balance is worth careful consideration.<\/p>\n

In general, next in line are those that charge stiff penalties for late payment, including landlords and credit card companies.\u00a0 Often last are the lawyers and accountants who protect you and help you to plan your recovery, only because they above all others are vested with you in your recovery and success.<\/p>\n

Accelerating revenues comes next.\u00a0 Close supervision of delinquent receivables is time-consuming but absolutely necessary. There are statistics that show clearly that the likelihood of payment drops quickly as receivables age beyond terms.\u00a0 And I\u2019ve seen many company receivables clerks do a stunning job of collecting right on time by calling a few days ahead of time to check on the progress of a pending payment.<\/p>\n

Thirty years ago, I stretched to buy a new home for my family that was above my ability to borrow at the time, but a bargain in a fast-rising market.\u00a0 My solution, aside from a first and second mortgage, was to call a number of my best customer CEO\u2019s, explain the problem-opportunity and ask for early payment of receivables.\u00a0 I promised each and later delivered a boatload of extra value for that evidence of good faith.\u00a0 As I recall, every one of the CEO\u2019s agreed to advance payments, and I did reward them with extra services.\u00a0 What may have seemed as a sign of weakness turned into a long term celebration of mutual trust and respect among peers.<\/p>\n

Many companies have recurring revenues, often billed in advance, for maintenance or other services.\u00a0 Merely sending out the invoices for each period\u2019s pre-billing up to a month in advance of the start of the period will accelerate cash flow considerably.\u00a0 Many companies ask for deposits before performing services. Increasing the percentage of a contract as deposit is often unquestioned by small to mid-sized customers.\u00a0 Large corporations, those probably most able to pay such deposits, are usually the first to push back, often quoting \u201cpolicy\u201d, whatever that is, as the authority preventing compliance with such a request.<\/p>\n

I promised a story about payroll taxes, and it is not a good one, despite the best of intentions.\u00a0 One of my companies where I serve as chairman used a payroll service company that impressed payroll taxes along with payroll employee direct deposits and remitted those taxes directly to the authorities.\u00a0 Well, almost.\u00a0 One quarter, the company just did not receive its copies of the quarterly reports.\u00a0 I had wisely suspected this payroll company already and had the company switch to QuickBooks Payroll at the start of the new quarter.\u00a0 It turns out that the two founders of the small payroll services company absconded with (stole) all of the taxes from all of their payroll clients from mid-May through end of June that year. Since no tax authority notified any clients during those weeks no-one was aware that the money was gone and forms never filed.\u00a0 Millions were stolen.\u00a0 It is now years later, and our company as well as others have double-paid all the taxing authorities those missing taxes, including interest, but with penalties waived. The two founders are in Federal prison and about five percent of the missing funds were recovered by the Justice Department and returned to the companies.\u00a0 So it seems that even conservative cash tactics such as using an impressed service for payroll can lead to disaster.\u00a0 Who knew?<\/p>\n

Now we turn to the more pleasant issues relating to growth, and explore some of the areas rarely considered when the rising tide lifts all boats.\u00a0 Those of us who have experienced exhilarating growth have stories to tell that make it obvious that the thrill of the wild ride makes the effort more than worthwhile.\u00a0 But growth has its issues too, and it is time to explore these.<\/p>\n","protected":false},"excerpt":{"rendered":"

We have discussed why never to run out of cash.\u00a0 This insight delves into how never to run out of cash.\u00a0 There are four basic ways to increase the cash position of a company:\u00a0 inject cash through borrowing or investment, … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"footnotes":""},"categories":[20],"tags":[],"class_list":["post-700","post","type-post","status-publish","format-standard","hentry","category-protecting-the-business"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/posts\/700","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=700"}],"version-history":[{"count":0,"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/posts\/700\/revisions"}],"wp:attachment":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=700"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=700"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=700"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}