For any company, finding cash to keep its operation afloat amid rising fuel costs is always difficult. But most businesses have more funds available than they know, so it's all in how they manage their cash flow. Here are several components to managing cash flow that can help you find the extra money you need:

  • Manage your accounts receivable and your days sales outstanding (DSO) figure — For small motor carriers, cash flow management is avoiding long periods of cash shortages, caused by having too great a gap between when accounts receivable are paid and when your bills are due. If you run out of cash before you run out of month you're in trouble; do it month after month and you're out of business.

    Whenever you allow a shipper to pay on credit, you become a lender. If done with limits and controls, issuing credit can be an effective revenue enhancer. Done haphazardly, it can lead to a cash-flow nightmare. Constantly look at your DSO figure. This is how many days from when a shipment was dispatched or delivered, to when the hauling invoice is paid in full. If final payment on a delivered shipment exceeds 50 days from dispatch or 40 days from delivery, you have a problem, and the more accounts which fit this description, the bigger the crisis. The bottom line? If you're going to issue credit, make sure your customer pays in a timely manner.

  • Know when and when not to issue credit to a customer — Give credit only where credit is due. Running the standard credit check and checking a company's Dunn & Bradstreet score is a great start, but it's only a start. Usually, by the time a credit reporting agency or D&B have negative credit information, it's too late. Have customers list their local credit references and banks. If a company fails, the small businesses that have issued credit to it are at the end of the collection list.

    So you must know the risk your customers represent to your revenue-producing capacity. What's their credit rating? How's their payment history? What are their projections for growth? What are their weaknesses? Are there problems on the horizon for this company or their industry? Labor troubles looming, foreign competition, recalls, product or patent lawsuits? Is there anything that could interrupt your customer providing you with loads? Remember, this is not a one-time process. You should track your customers' credit worthiness minimally every six months.

  • Manage your credit, know your credit score, and don't abuse it — Your ability to borrow cash can get you through rough economic times. Abused credit is one of the greatest destroyers of small businesses, right behind not having a business plan. Create a strategic credit plan which outlines when, why and how you are going to borrow money. Never borrow more than you need. Have a definitive payback plan.

  • Diversity is the secret to positive cash flow — “Don't put all your eggs in one basket” applies here. A single customer shouldn't represent more than 20 to 25% of your total revenue or accounts receivable. Shipping customers are the core of your business, so focus on continually farming for new business. Constantly develop relationships with companies and individuals who provide new opportunities. Growing your business is your objective. Creating diversity in your customers is critical to ensuring a positive cash flow. It's much easier to replace 20 to 25% of your revenue needs than larger percentages.

  • Stay on top of that ever-changing break-even point — To correctly manage your cash flow, you must constantly monitor your break-even point. This is especially important in these unpredictable economic times, when fuel price fluctuations are driving thousands of trucking companies out of business. Calculate the changes in your break-even point on a week-by-week, if not load-by-load, basis. Knowing your break-even point on each piece of equipment is critical to keeping your profit bull's-eye in sight for each load you haul.

  • Develop a strategic plan to deal with periods when cash is short but bills and expenses need to be covered — In your strategic plan, you must have an accounts receivable management company in place. Every start-up company and any company attempting to grow will experience a cash-flow deficit at some point. You need an organization which becomes your backbone. Do not wait until you are in dire straits to locate a commercial lender or factoring company. Find an accounts receivable collection company that will assist in building cash reserves for the future, gives you quick access to cash, and provides a means to become self-capitalized.

  • Have a growth plan in place which anticipates expansion so you have the required operating cash on hand while your revenues catch up — A large majority of small trucking company owners lack investment in their own company. These owners unknowingly steal the cash from their trucking operation for personal uses. They've failed to factor in all their costs in determining their break-even point while developing their hauling rates — or they don't know their break-even.

As you develop your growth plan, reinvest your profits back into your company. If you are currently living off the profits and not paying yourself a salary figured into your fixed costs, you are stealing the money which could help you grow. Set a salary for yourself, take your profits and start building your growth account. A successful business typically won't share profits with its owners for three to five years. But an owner who hasn't calculated a salary into his break-even point most likely won't be in business at the end of five years.

Cash is king. The management of it is the secret to success.


Contact Tim Brady at tbrady@writeuptheroad.com or 731-749-8567.