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Cash flow – is it bugging you?

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Cash flow is the most important aspect of business, albeit, one of the hardest to control. According to Peter Arnold, owner of Termite Doctors on the Sunshine Coast, it is a business task requiring an owner’s undivided attention.

Cash flow is the most important thing in running a business – if you haven’t got good cash flow, you may as well close up shop and work for somebody else,” says Arnold.

Arnold opened the business with his wife, Elaine, in April 2002, investing the entirety of their $5000 in savings into the project. Eights years on, Arnold has seen the ups and downs of being a small business owner – however, he notes, he has never had an issue with cash flow, due to his tight control over the business’ finance.

Cash flow and debtors

Arnold has implemented strategies for ensuring there is a steady and consistent stream of finance entering the business.

“We’ve trained our customers and we’re also pretty upfront,” he says. “Initially, when we speak to a customer, we explain the price and ask them how they want to pay.”

Termite Doctors works on a cash-on-delivery basis for its residential customers. This means that once a service is completed, Arnold receives payment immediately. He has integrated a variety of payment methods, including cash, credit card and a mobile EFTPOS machine, so that the customer can conveniently provide payment upon delivery of the service.

Commercial contracts have a different policy but rely on the same principle.

“When we start our negotiations and give contracts, we explain we need payment seven to 10 days after the completion of the service. We maintain that and give them courtesy phone calls because, of course, they always try to stretch that out to 30 to 60 days.”

He notes that these policies have allowed for cash flow to be constant and consistent within business operations. In fact, in the course of the business’ history, Arnold has only had difficulty receiving payment from two customers.

“The most important thing is to inform your customers what the expectations are before you enter into an agreement to go and do your service. If they know and they appreciate and accept it, then there’s no reason why it shouldn’t be carried out,” he says.

Cash flow and creditors

Similar to debtor policies, Arnold manages fluid cash flow by monitoring the money going out of the business. For one, he limits the amount of debt carried from one month to the next.

“We pay all our bills on credit card, so we get 55 days [to repay],” he says. “We always pay that back so we never pay interest.”

As for regular creditors, Arnold maintains good relationships with suppliers by establishing accounts with reasonable payment periods. In this way, repayments can always be met and the relationship sustained.

Cash flow and business management

When it comes to cash flow, Arnold says it has far more to do with management than accounting.

Cash flow is not just collecting the cash – it’s managing the actual business itself,” he says. “When you stand back, you’ve got to know your KPIs and you’ve got to know what your break-even points are.”

Thanks to MYOB, Arnold is able to continually monitor the business’ financial position. However, equipping yourself with this knowledge is only part of the role. A business must also implement strategies to complement these finance indicators.

For instance, Arnold manages staff income, based on the break-even point of the business, to maintain positive cash flow.

“We pay our team on the break-even point of the business for each month. Then they get bonuses and these increase as you get more and more revenue above that break-even point,” he says.

To complement this, Arnold allocates the workload, according to which tasks are the ‘money-makers’.

“If we do a semi-treatment (that’s a main part of our business), we allocate so many days a month. All the little jobs fit in around those days… so we maintain a certain cash flow for each week,” he says.

With a steady financial position and strong management, Termite Doctors is only beginning its trench hold in the market. Though customer service and intuitive leadership play their role in the business’ success, Arnold credits the business’ survival, in good times and the more recently bad, to the management of positive cash flow.

So, if you’re looking to work on your business rather than being stuck in it, book in for a complimentary business assessment today with Switzer Business Coaching

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Monday, August 02, 2010

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