Recently, American Management Services started working with the owner of a restaurant chain, made up of six locations spread across the Northeast. Since the first day they opened their doors, they approached paying vendors with a sense of loyalty by cutting checks the day the invoice was received. While being loved by their vendors, our client was receiving no discounts, and put themselves financially at risk by not safe-guarding their cash!
As we started working with the client, we noticed other money management mistakes that are common in the small business owner community. It’s made me think, and put together some money management tips, to help owners who might be in the same boat they were in:
1. Never use credit cards to pay your bills. Unless you can pay the credit card in full when the statement comes in, don’t do it. Put the credit card back in your pocket, and NEVER use it to pay bills.
2. Safeguard cash. The old adage “Cash is King” is never more important than when you own a small business, and you have limited resources. What that means is DO NOT write checks every day! No way, no how.
3. When it comes to cash, trust no one. If you have a bookkeeper, or a controller, who is maintaining your checkbook, make sure your bank statement is mailed to your house every month, so you get a chance to see what’s gone in and out with your own eyes. DO NOT trust anybody! That’s why big corporations have checks and balances, with double or triple sign offs on disbursements.
4. Enforce an aggressive credit and collection program. It’s your money, and you need to make sure you are going after it as quickly as possible, when it is due to you. If your terms are net-10 days, then on the 10th day you should be on people’s butts, and knocking on doors if you have to. If your terms are net-30 days, then on the 30th day you should be haunting people. Don’t be afraid to ask “Where’s my money?”
5. Don’t be afraid to use outside services to collect your checks. Did you know you can use FedEx to pick up checks from your clients? Fedex, and most other parcel services, offer convenient ways to schedule pickups, or arrange shipments with a few clicks of a mouse. It’s a convenient way to secure payments, and helps hold your customers accountable!
6. Rethink your payroll. If you’re paying your payroll weekly, think about paying your payroll bi-weekly. It’s a strategy that picks up one week’s worth of float on your money.
7. If you have excess cash in the account, take it. Don’t be afraid to take excess money as a distribution, or a loan to yourself. If you need to put it back, you can put it back. You deserve it!
8. Work with your vendors. There is nothing wrong with asking for a discount from your vendors, for being a loyal customer. If they only offer discounts to customers who pay in 10 days, see if they’ll give you anything at 20, or 30 days. If they won’t give you a cash discount, and your vendor terms are net-30, pay them in net-45. No one’s going to have a heart attack over it, and no one wants to lose the business.
The biggest mistake I see owners make is not fighting enough for discounts from their vendors. If you can’t get that 2% discount because you can’t afford to pay the bill within net-10, then you need to push your vendor to give you something at net-20, or 30. You’re the loyal customer, and they should have to fight to keep your business!
The second biggest mistake I see owners make is using credit cards to pay bills. Don’t use your damned credit cards if you can’t pay them off at the end of the month!
Trust me folks, the more money you have in the bank, the better off you’ll be!
This article was written by Louis Mosca from Forbes and was legally licensed by AdvisorStream through the NewsCred publisher network.