Recently, American Management Services started working with the owner of a restaurant chain, made up of six locations spread across the Northeast. Since the first day they opened their doors, they approached paying vendors with a sense of loyalty by cutting checks the day the invoice was received. While being loved by their vendors, our client was receiving no discounts, and put themselves financially at risk by not safe-guarding their cash!
As we started working with the client, we noticed other money management mistakes that are common in the small business owner community. It’s made me think, and put together some money management tips, to help owners who might be in the same boat they were in:
1. Never use credit cards to pay your bills. Unless you can pay the credit card in full when the statement comes in, don’t do it. Put the credit card back in your pocket, and NEVER use it to pay bills.
2. Safeguard cash. The old adage “Cash is King” is never more important than when you own a small business, and you have limited resources. What that means is DO NOT write checks every day! No way, no how.
3. When it comes to cash, trust no one. If you have a bookkeeper, or a controller, who is maintaining your checkbook, make sure your bank statement is mailed to your house every month, so you get a chance to see what’s gone in and out with your own eyes. DO NOT trust anybody! That’s why big corporations have checks and balances, with double or triple sign offs on disbursements.
4. Enforce an aggressive credit and collection program. It’s your money, and you need to make sure you are going after it as quickly as possible, when it is due to you. If your terms are net-10 days, then on the 10th day you should be on people’s butts, and knocking on doors if you have to. If your terms are net-30 days, then on the 30th day you should be haunting people. Don’t be afraid to ask “Where’s my money?”
5. Don’t be afraid to use outside services to collect your checks. Did you know you can use FedEx to pick up checks from your clients? Fedex, and most other parcel services, offer convenient ways to schedule pickups, or arrange shipments with a few clicks of a mouse. It’s a convenient way to secure payments, and helps hold your customers accountable!
6. Rethink your payroll. If you’re paying your payroll weekly, think about paying your payroll bi-weekly. It’s a strategy that picks up one week’s worth of float on your money.
7. If you have excess cash in the account, take it. Don’t be afraid to take excess money as a distribution, or a loan to yourself. If you need to put it back, you can put it back. You deserve it!
8. Work with your vendors. There is nothing wrong with asking for a discount from your vendors, for being a loyal customer. If they only offer discounts to customers who pay in 10 days, see if they’ll give you anything at 20, or 30 days. If they won’t give you a cash discount, and your vendor terms are net-30, pay them in net-45. No one’s going to have a heart attack over it, and no one wants to lose the business.
The biggest mistake I see owners make is not fighting enough for discounts from their vendors. If you can’t get that 2% discount because you can’t afford to pay the bill within net-10, then you need to push your vendor to give you something at net-20, or 30. You’re the loyal customer, and they should have to fight to keep your business!
The second biggest mistake I see owners make is using credit cards to pay bills. Don’t use your damned credit cards if you can’t pay them off at the end of the month!
Trust me folks, the more money you have in the bank, the better off you’ll be!
This article was written by Louis Mosca from Forbes and was legally licensed by AdvisorStream through the NewsCred publisher network.
Important Disclosure Information
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Dechtman Wealth Management, LLC [“DWM”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from DWM. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. DWM is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the DWM’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.dechtmanwealth.com.
Please Note: DWM does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to DWM’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
Please Remember: If you are a DWM client, please contact DWM, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently.
Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.
"*" indicates required fields