Posts Tagged ‘purchase order’

6 Tough Love Cash Management Tips

July 10, 2010

by Doug Smith, President, The Woodhaven Group

Ok, so your business cash flow is in real trouble.

The expected sales increase you anticipated after changing the marketing strategy is not working. I mean it is really not working.

As a small business owner it seems like you are a quarterback operating the 2 minute offense just to get some cash in the door.

What can you do differently to bring in cash?

Well I have walked in your shoes.  It’s not a pretty situation to be in.  Here are tips you can start doing before the sun goes down tonight:

  1. Let everyone know there will be nothing purchased in the company without it first going on a purchase order.  Then you have to personally sign off on the purchase order before it is processed.  If that delays a purchase 24 hours so be it.  Then you as owner sign every check.  Do not delegate this.  By signing checks you will discover who has circumvented the new system.  You will find that unnecessary spending and over spending will stop when everyone knows there will be an audience with you.
  2. Have your management team identify such things as old equipment, old machinery, vehicles not being used, obsolete inventory, and even unused furniture.  Then sell it.  Have a board posted in your office with the items listed and post the money received as each item is sold.
  3. Eliminate all service and maintenance contracts and replace with an hourly fee for service performed.  If your company really needs to cut back temporarily on expenses to generate cash this will do it.  You can always reinstate the service contracts later.
  4. Generate an upfront down payment  on all sales (unless you are a retail store where you get the full amount at the point of sale).  The sales department will balk at this as they will be concerned that a down payment will kill the sale.  It won’t.  Change the commission structure to pay less if  no down payment is received.  The top sales people won’t miss a beat.  They will get the down payment and be an example for the others.
  5. Go to your landlord and negotiate a 10% or more reduction on rent.  In  return offer to extend the term of the lease.  Make sure there is a clause in your lease that allows you to sublet unused space.  
  6. If you own your property or own large equipment then do a sale and leaseback.  Even if you owe on loans, you will convert your equity position into cash.

As an owner of a small business, sleeping at night is a good thing.  Use these 6 tips and take some pressure off of your cash flow position and your nerves.

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Have A Down Payment Pricing Policy To Speed Up Cash Flow

June 29, 2010

by Doug Smith, President, The Woodhaven Group

Does your business perform a unique service or make a custom-made product?  If so, start including a down payment requirement when quoting a price for services or products.  This will dramatically speed up your business cash flow.  Combine this with extended terms from suppliers and that line of credit at the bank may not be needed.

Many companies are reluctant to ask for a down payment out of fear that it will upset the customer.  Our society has trained customers to expect to pay a down payment when purchasing certain products and services.  Most consumers would expect to be asked for a down payment when purchasing a home or car.  Unless your business is a retail transaction in a store where the customer gets the product immediately (ie:  restaurent, drug store, oil change, etc.), then try this tip and see your business cash flow take off.

It should always be a policy that any custom product or service  should require up to 50% down payment.  These funds early in the transaction can be used to offset materials & labor, marketing, and sales cost.  Or, just put the cash in your bank account and earn interest.  By receiving a down payment it also shows commitment on the part of the buyer.

Examples of a few products or services that should be getting up front down payments are:

  • Landscaping projects
  • Website design
  • Home or commercial remodeling of any kind
  • Caterers
  • Interior decorators
  • Direct mail design and production
  • Tailoring
  • Machine shops
  • Excavation
  • Dock repair or replacement
  • Mold remediation

Always make sure a complete purchase order or contract is signed by both parties spelling out the contract price, amount of down payment and balance owing so there is no misunderstanding at the end of the job how much the final payment will be.

Put this pricing policy in place today and watch your business cash flow immediately increase.