Back to Basics – Smart Business Thinking

Back to Basics – Smart Business Thinking

The two “techie” guys are pals and business owners of an Arlington small IT service company. They have been working together for three years.

They started the business  out of a spare bedroom. Although the business grew they were still operating it on the “back of the envelope”. They asked me to work with them on a strategic plan and to help implement and manage it.

We developed the plan, put it into effect and sales and revenue were growing steadily. Everyone was pleased.

During a regular visit it was clear something was wrong. They air was strained and they were barely civil to each other. The usual questions didn’t flush out the problem.

A separate closed-door one--on one with each surfaced the issue. Not enough cash being generated to cover operating expenses and salary.

With the steady growth of their IT services business that didn’t make sense. A visit with the office administrator uncovered the missing link.

The accounts receivables report gave us the answer. “Why are the receivables so high?” An outstanding receivable of more that 30 days may be a red flag of customer cash flow problems. At the very least it is a loan to the customer.

“I’m so busy booking new business I haven’t had a chance to pay attention to the outstanding invoices.” That is a typical dilemma in a fastgrowing company.

Back to basics – we are in business to generate income. Closely watching the receivables account is the key way to achieve that.

Now the office administrator runs a report for the owners every Friday with an explanation of each over-30-day receivable.  The report did not solve the problem by itself – the report focused attention and made them make collection calls.

With cash flowing in the way it should, the two successful techies are pals again.

Bottom Line?

·      You are in business to generate income. Closely watching the receivables account is the first place to look for a cash flow slow-down.

·      Sales are important, however a receivable outstanding longer than 30 days is an alert of possible customer financial problems or a loan to the client.

·      The company is not in the loan business.

·      Keep an eagle eye on the cash flow by setting up a checklist to raise a red flag if income slows down.    

Jim is an expert business coach and a respected advisor to management and financial executives. He draws on his long-term business leadership background to help CEOs grow revenue, increase profits, improve performance.