Adams On PVF Supply
1. Set aside your cash reserve. Every business has ups and downs. Do you have a cash reserve? A credit line that you haven't tapped out? You can't create a reserve tomorrow, but you can start setting a little aside each month. You should have enough cash on hand for 3 - 6 months of your operating expenses. Stuff happens, sometimes really bad stuff, and you never know when you are going to need it! Pay down the loans. Deepen that credit line.
2. Figure out your monthly cost of doing business.
Rent, utilities, interest, salaries, insurance, all of it. Do you really know how much your business costs to run every month? Figure it out and watch it like a hawk. Then you will know when your costs start to go up - and then get out the paring knife.
3. Separate your personal finances from your business finances. A lot of small businesses run out of both the owner's pocket and out of the company's account. You will never, ever, know what your real profits and losses are until you completely, totally separate the two. Get a business credit card, open a business bank account and create a business petty cash stash. Pay for absolutely everything for your business with the business accounts and nothing else. Later, you and your tax accountant will thank me.
4. Calculate money sources. Evaluate your sources of money. Do you have investors, a bank, family members and, of course, yourself involved financially in your company? If the answer is yes, do you know who put in what, when and how much is due them? Keep track of every dollar put in - and every dollar paid out.
5. Pay back costs, interest and timing. You can't forever pay interest without putting a dent in principal. You need a payback plan, or else someday when you go to the bank, your family, or your partner, you will find the well dry. Or worse, one of these guys is going to end up owning your business instead of you.
6. Count real sales. No sales, no business. Yet, many companies book anticipated sales, promised sales and not the real number. Only count sales that are in the bank, and you won't have any awful surprises. Measure your sales the following three ways:
- Track each salesperson's performance.
- Track product lines by vendor.
- Track sales to your most important clients.
You will know which salespeople are doing their job, which products are moving and which clients of yours are increasing business.
7. Boost/maintain margins. Pricing can kill you. How many sales have you made where you dropped the price to make the sale or to hit a vendor's volume discount number? Sure, you shipped a lot of pipe and moved some pretty sophisticated valves, but did you make money?
Make sure your margins cover the costs of that sale. A 30% mark-up on a valve sounds very good. Cutting that price by another 5% for a good customer sounds reasonable, too. However, they want daily deliveries. They need the pipe cut and threaded. How much of that 25% margin are you putting in the bank? Not much. It is time to start charging real prices for what you do. Delivery distances, delivery frequency, and all the extras have to be added to the price. Pricing discipline and real pricing will add dollars to your bottom line every day.
8. Inventory costs money. Never forget that inventory is stuff you paid for and haven't made a dime off yet. I know accountants will call inventory an asset. To me, excess inventory is cash out the door, some of which you will never see again. Measure the total book value of your inventory. Make a solemn promise to reduce it by at least a few percent every month. You stop only when you risk having stock-outs.
9. Figure out your break-even point. You've figured out your monthly costs. You know your average cost of goods sold. Now figure out the number of days of sales it takes each month to get there. Let's say it takes three weeks of sales to cover your monthly costs and cost of goods sold. Don't think of that as your money. It's not - that money is going somewhere else. “Your” money is the sales dollars that come in after break-even. Your objective now is to reduce the number of days it takes to get to break-even.
10. Cash flow - pessimistic, optimistic, realistic. Cash is King is not just a catchy phrase, but a cold, hard reality. Bring your operations and sales staff together for an all-day meeting. Create three scenarios. This exercise will allow you to make assumptions and test them - before they really happen.
- Pessimistic - Think of all the things you hope will never happen and assume they do. How will the numbers look? How are you going to survive? What can you do about it?
- Optimistic - Brainstorm about a starry vision of everything falling into place. How much of that is dependent on other companies? How much can you make happen?
- Realistic - Now, take some from the pessimistic and some from the optimistic and create a realistic scenario. From that, you can develop a realistic plan for the next three months.
11. Finally, run the numbers. Track your progress religiously every month and vigorously do course correction when a number isn't progressing.
Run the numbers, run the numbers, run the numbers. When a number isn't good, act immediately.
Then, when someone like me, or a bank or a prospective buyer says SHOW ME THE MONEY, you will have a track record to show.