“Poor cash flow management is the primary reason for a vast proportion of business failures. Many profitable companies find that they are, for all practical purposes, insolvent – simply because of uneven cash flow.”
That's a quote from Josh Hall’s essay Top Five Reasons Why Businesses Fail.
Does it ring true for you?
In our business sector, it’s no secret that solid cash flow management practices are crucial, especially given the idiosyncratic nature of how our customers purchase and pay for building materials. Put ten successful LBM dealers in a room, and most would say that they have decent collections but would admit that lack of cash flow is holding them back from their goals of legacy planning or new growth ambitions. They would also tell you that they sometimes feel the frustration of “being the bank” for their customers with chronically late payments keeping them from what matters most.
The Impacts of Cash Flow
Before we suggest best practices for managing A/R, note that these practices are focused on your balance sheet, not necessarily your P&L. If a dealer has strong sales, yet is not paid on time for goods sold, those sales are reflected on their balance sheet as A/R, rather than as cash. Too much non-current A/R is the sign of a business whose growth potential is being limited and is potentially a vulnerable business if something happens and they need that cash.
About the AuthorMore Content by BlueTarp Financial