Tuesday, August 2, 2011
How to milk your cash cow
Milk is great for the development of babies. Cash is the milk of business. Cash flow is the process of managing that milk. When you have a business, built or inherited, it is wise to refer to it as a cash cow.
Now, whether you have seen a live cow in real life or not, does not matter. Educate your self on the behavior of looking after milk giving cows. But I use that as a figure of speech. Money that comes into the business is for the business, and the shareholders in that order, just like milk that a cow may have is for the calf, and the owner of the cow in that order.
However, it is not that kind of order that sees some businesses struggle. Every business leader will tell you that sales run business. You need to sell, sell. True. They do not however tell you that after sales, collections are as important. You need to attach as a strong a force to sales as to credit collection.
If yours is a small young business chances are that your HR department is watching your head count strictly, so they will allow you in a few sales people every once in a while but when credit department asks for more man power in collection, they may develop cold feet. Don’t encourage it, my friend. You see, much as you are taxed of invoiced on money not received yet, in real life the only money that is really yours is that which you have in the bank. Billions owed you is not your money yet, till you collect it.
At any stage of business, especially at the young stage, how you collect from debtors is as important as how you sold to them. Yours could be a cash based business, and in our economy, those are many but at particular times as you grow and in order to develop more lasting relationships, you may find yourself extending credit to ‘good’ clients. Watch out; these may lead to your death, if you do not collect as soon as the accounts are due.
I had struggled through the worst two years of my business and I was looking to expanding slowly. At that time, my business dealt with Supermarkets, and shops, if you may. Reason being, they had a customer base which I was looking to tap into. Only challenge was, most of them were credit based. They would order, you deliver, and then collect accounts when due. For most of them accounts could be due in a week, but for some, they could take a few weeks, say three. However, in the mean time, supply orders were flying to and fro and threatening e-mails were being sent once an order delayed.
It is during this time that what I thought was a life saving deal came through. The biggest outlet then entered the market, and suppliers like me queued up to supply our wares. Knowing their strength in size, our agreement stipulated payment within thirty days after delivery. However, that did not mean we were not mandated to supply every time stock went low (and it did quite often weekly). I found myself making more supply trips than cheque collection trips, to my detriment
You see, a situation like that means you need to have enough resources to produce and supply as you wait for maturity of your credit. You may even borrow to meet orders, and by the time the cheque is due, if you get paid as promised, that is, you have interest to pay on the loan as well.
That is dangerous for business.
If you remember our analogy to the cow, you are milking without feeding enough. It may collapse soon. So go and pick up that cheque when they say you should. When they ask you to wait along, please wait..and when they tell you to come back in the after noon, be there. It is your lifeline. It is those small uncollected monies that grow into huge debts and they cripple the business, and no matter the size of the payment if not picked when due, urgency especially from the payer reduces and they could play dumb or divert it. Don’t give them opportunity to be dishonest. Pick your money from them urgently. It serves you both very well. You better actually.