If you’re a business owner, I’m sure you realize the importance of cash. Nothing will sink a company faster than cash-flow problems. And unless you really, really just love what you do, you went into business to generate cash. Heck, even the most commonly used methods of valuing companies are based on measuring the amount of cash they can generate. Bottom line, cash is the life blood of a business. Not a very radical sentiment I know, but follow me.

If we all agree that cash is the most (or at least one of the most) important assets a company can own, then why are you afraid to ask for it? That’s right, I’m addressing 90 percent of the business owners I have met since I started my practice. Why are you (or your employees) afraid to ask for your money? 

Whenever I start working with a new client, particularly one that is having cash-flow issues, the very first area I examine is accounts receivable. Often, the answer to all of their cash-flow problems (or at least a big chunk of it) is right there in the accounts receivable. But when I ask why these amounts haven’t been collected, there’s always a reason: “He’s a long-time customer,” or “This is a very large client so we had to give them terms,” or my favorite, “They just pay when they want.” How can you run a business when you allow your customers to dictate your cash flow?

The answer is twofold: 

• First, you most likely do not have a well-defined policy for how your customers are supposed to pay you and what to do if they don’t. Here’s an example: One of my first clients was a contractor who had to provide his own materials and pay his people weekly. His jobs often lasted two or three weeks at a time, and he never received any money up front. When a job was completed, he would send an invoice and wait for payment. Sometimes he would be paid within a week, but more often he was waiting 30 days to 45 days to get paid for a job. A job, by the way, for which he had to supply material and labor for at least 60 days prior! Needless to say, he was having major cash-flow issues, even though he was profitable. Once I explained where his money was, we implemented a policy to require all of his customers to pay a 60 percent deposit before work started. The rest was due on the day the job was completed and final walkthrough occurred. After six months, the contractor was not only debt free but had built a cash reserve to prevent future cash-flow problems. Implementing the policy was one thing, but the true challenge was getting past the second point, which was his ...
• Mindset. Most business owners are so concerned with the top line (revenue) that they will do anything to make a sale, including bending over backward on payment terms. There is little thought given to what a potential sale can do to the cash flow of an organization. The biggest challenge I have is to convince business owners that not every sale is a good one. If a customer is not willing to abide by your policies, you must be disciplined enough to walk away from the sale. Your mindset must be that your business offers an excellent product or service at a fair price, and in return you will be paid on time and according to policy. If you have to sway from that mindset to make a sale, you need to examine your business to determine if you truly deliver value to your customers. If you do, your customers will have no issue following your policies, since they know they will not get a better value somewhere else.

Bottom line, it is not rude to discuss money with your customers. It is not rude to ask for money. This is business. 

If I made a list of the top five things your organization should focus on, the first thing would be “Delivering outstanding value to your customers.” The rest of the list, in order of importance, is easy to remember:

2. Collecting your money.
3. Collecting your money.
4. Collecting your money.
5. Collecting your money. 

Robert J. Rickert CPA, PC focuses on giving its clients timely, accurate and relevant financial information to help them make informed decisions about their businesses. The firm provides customized solutions to meet the specific needs of its clients. Services offered by the firm include CFO and controller services, crisis management, interim financial management, acquisitions and business buying, divestitures and business selling, litigation support, business tax services, and tax dispute assistance for individuals. For more information, visit rickertcpa.com, call 910-319-9127 or email [email protected].