Correcting Cash Flow Problems

Learn why a cash flow statement is important and how to improve your shop's cash flow.

In the business world, who hasn’t heard “cash is king”?  Someone (no one really knows who) coined the phrase more than twenty years ago in the late 80s. The phrase stuck and is now ingrained in our financial vocabulary.

The pronouncement emphasizes the paramount importance of having more cash coming into your business than the amount of cash flowing out of it. Cash is arguably just as important, if not more important, than sales and profits. That’s not to say that sales and profits aren’t important. They are.

Here’s my point. Companies usually go out of business not because they are unprofitable, but because they cannot pay their bills. Having record-breaking sales at healthy profit margins is laudable, but you must convert your receivables into cold, hard cash.

While it may seem that I am stating the obvious, it can’t be all that obvious. The reality is that negative cash flow is a predicament that nearly half of all small businesses face.

The Importance of a Cash Flow Statement.

Are you getting a monthly Cash Flow Statement from your accountant? If you are not, it’s probably a worthwhile expenditure. The purpose of the Cash Flow Statement is to track how much cash is added to your coffers and how much is subtracted. It also provides you with a picture of where your money is coming from, as well as how your money is being spent. If you have any investors backing you, this will certainly interest them.

Getting a monthly Cash Flow Statement is your early warning system, which can alert you to those manageable minor problems before they grow into major insurmountable problems.  Many shops get into financial trouble, because the owner or manager is not tracking their cash position. 

Cash Flow Statements can be structured in a number of different formats. Some of these formats can be difficult to understand. Regardless of the format of the report, it should present some basic information. As a starting point, the Cash Flow Statement should provide with your Cash on Hand at the beginning of each month. This is your starting point. Added to this are your Cash Receipts, which consist of Cash Sales, Collections from Accounts Receivables, Deposits (on any jobs that you are starting), Loans as well as any additional money that you might add to your business. Subtracted from this sum is Cash Paid Out, which consists of any purchases of raw materials, Gross Wages, Payroll Expenses, Advertising Expense, etc.  The result is the Total Cash Available.

Improving Your Cash Flow.

Monitoring your shop’s cash flow, whether you do it on a monthly basis or on some other schedule, will help you adjust your business practices, so you can meet your immediate financial obligations. It will also help you determine your upcoming needs for cash or credit and anticipate any potential problems.

If the money flowing out of your business exceeds the amount coming in, the fiscal health of your business stands on a precarious footing.  Here are a few suggestions to help you improve your shop’s cash flow:

• One of the best solutions for improving your cash flow is one of the oldest practices in the sign industry. Requiring that a customer puts down a 50% deposit on any project, can offset your purchases of raw materials and labor costs. Payment in full of the balance upon completion of the job can eliminate any collection problems.

• Whenever customers pay by check, make a daily beeline to the bank and deposit them.

• Encourage cash payments or credit card payments.

• If you extend terms to customers, provide discounts for payments on balances due, when customers pay within 30 days. That way you will decrease the time between the sale and payment.

• Develop an aging report categorizing the aging of your accounts receivable. In a spreadsheet, list past due balances in columns for 1 to 30 days, 31 to 60 days and 61 to 90 days.

• Assign the responsibility for the aging report to one of your employees, who can make the necessary collection calls.

• Many businesses get into hot water when their expenditures increase faster than their sales. Maintain a tight control on any discretionary expenses. Obviously, raw materials ordered into a job are essential. But many other purchases are often unnecessary.  Formalized purchasing practices within your shop, can help reign in frivolous or wasteful spending.

• Don’t tie your cash up in excessive inventory. Sign shops do not need a huge stockpile of  raw materials to operate efficiently. Keep your stock of materials at a bare bones minimum. Periodically review your inventory with an eye for reducing it. As best you can, get in the practice of ordering into the job. Recognize that the value that your sign supply distributor provides is to supply you with the materials that you need, when you need them.

• Preserve your relationships and good standing with your sign supply distributors, by paying them within the terms of sale. That way, when you are in a jam and need additional time to pay your bills, your distributors will be more likely to grant you an extension.

• While I recommend paying your distributor in a timely manner, that does not mean that you need to pay the bill before it is due. Waiting until the deadline to make your payments will improve your available cash.

• Until you build up your cash reserves, your shop will likely be in a vulnerable financial position. If your business is relatively young, you may need to take out additional loans. Just be aware that your interest rate will likely be less than desirable. If the rate is unpalatable, then you may resort to infusing your business with additional cash from your personal bank account.

Final Thoughts on Extending Credit.

In the excitement of closing a big deal, it is very easy for a sales person to extend credit, without giving the decision much thought. That big deal can result in a big mistake. “Making the sale isn’t always the best thing for your business if you don’t get paid,” says Tim Reimer, Controller for Nekoosa Holdings, Inc.  “Try and think of the ‘return on investment’ for every decision that you make which involves cash.”

Reimer explains that if you extend a customer a $10,000 credit line when your profit margin is 15%, you are making a $10,000 investment in hopes of making $1,500 in 30 days.  “If you don’t get paid or get paid late, you are out the profits as well as the materials and expenses need to make the sale,” he says.  “Understand the risks and ensure that your return on investment is within your expectations.” 

Anytime that you extend credit, follow up with that customer is crucial.  Send statements and communicate the importance of timely payments with your customers.  “In many cases, customers will test your responsiveness to late payments to see how long they can stretch things out,” says Reimer.  “Keep your customers current.  Receivables at the 90 day past due date only typically have a 60-65% chance of collection, which rapidly decreases as time advances.”

Vinyl Application Videos

Squeegee Technique. Nothing is more basic in vinyl application than the squeegee. But some squeegees work better than others. And there are right ways and wrong ways to use this simple tool. This video clip reviews squeegee selection, squeegee care and squeegee technique. Click to Link

Wet Applications. Dry applications are typically recommended for most vinyl applications. For those exceptions to the rule, this instructional video explains the right way to perform a wet application. Click to Link

Application of Window Graphics. Installing vinyl graphics on glass can be challenging, because the adhesive aggressively grabs onto this high energy surface. Repositioning graphics on window is generally difficult, if not impossible. This instructional video explains how to dry apply window graphics right the first time. It also describes the necessary steps required for surface preparation. Click to Link

Transferring Frosted Window Graphics Films.  Because frosted window films are highly textured, transferring cut vinyl graphics can be problematic. This video provides direction in selection of the right application tape and how to apply these films quickly, easily and without problems. Click to Link

3-Step Surface Prep. This instructional video describes how to properly clean the surface of a vehicle before applying pressure sensitive vinyl graphics to a trailer or doing a full wrap of a car or van. This three step surface prep involves detergent washing, solvent cleaning and a final wipe down with IPA. Click to Link

Vinyl Application Over Rivets. Applying vinyl graphics on vehicle surfaces with rivets is challenging for most sign makers. Vinyl failures to these surfaces are all too common. This video demonstrates some tips and procedures, used by professional decal installers, which will make these demanding applications easier and more trouble-free.  Click to Link

Vinyl Application to Corrugations. Learn how to apply vinyl graphics to corrugations in a relaxed state. Forcing films into the valleys of corrugations puts too much mechanical stress on the film. Sooner or later, the vinyl will lift or tent in valleys. Click to Link

Applying Air Egress Vinyls. Vinyl films with air egress release liners have almost eliminated bubbles and wrinkles from applied graphics. Air egress release liners with their highly textured surface structure are problematic. Not much will stick to these liners other than the vinyl film. At RTape our best premask solution for air egress liners is a special Conform® tape called 4761RLA. Click to Link

About Jim Hingst: After fourteen years as Business Development Manager at RTape, Jim Hingst retired. He was involved in many facets of the company’s business, including marketing, sales, product development and technical service.

Hingst began his career 42 years ago in the graphic arts field creating and producing advertising and promotional materials for a large test equipment manufacturer.  Working for offset printers, large format screen printers, vinyl film manufacturers, and application tape companies, his experience included estimating, production planning, purchasing and production art, as well as sales and marketing. In his capacity as a salesman, Hingst was recognized with numerous sales achievement awards.

Drawing on his experience in production and as graphics installation subcontractor, Hingst provided the industry with practical advice, publishing more than 150 articles for  publications, such as  Signs Canada, SignCraft,  Signs of the Times, Screen Printing, Sign and Digital Graphics and  Sign Builder Illustrated. He also posted more than 325 stories on his blog (hingstssignpost.blogspot.com). In 2007 Hingst’s book, Vinyl Sign Techniques, was published.  Vinyl Sign Techniques is available at sign supply distributors and at Amazon. 

© 2016 Jim Hingst