Basic Numbers 101
Times are tough and we feel it all around us. If you say you aren’t hurting at all then likely you are kidding yourself or you are an anomaly to the rest of the world. Even though you, your vendors or suppliers can offer certain products or services that generate outrageous returns, it is like pulling teeth to get anyone to pull the trigger on most investments today. Sound familiar? We thought so. Failure to act on these opportunities can be a big mistake though.
The following basic 1-2-3’s of financial management can help you even though you don’t want to spend a dime right now:
1) Accounts Receivable (A/R): Watch this important asset more closely than ever before because the squeaky wheel does indeed get the grease. Anything over 60 days in A/R needs the attention and involvement of ownership or senior management. Unless otherwise previously agreed to, most accounts are “Net 30.” Isn’t this the same terms typically offered and expected by your vendors? So, when one of your accounts goes delinquent there should be concern. Your company’s receivable is not the only one delinquent with these slow paying customers, we assure you. The old way of having a clerk call your delinquent accounts to collect is over. Get on it or prepare to write it off. We used to recommend this strategy after 90 days but those days are over. 60 days is now the “red flag” time frame.
2) Resale Merchandise: You are a rental company! Sales, whether equipment or resale merchandise, are and should be completely secondary to your operation and offered as a complement to rentals. Have at least 4 “turns” per year, along with a 30% margin on resale merchandise or get out of this business. Don’t fall for vendor quantity “specials”—that is a recipe for failure in this department.
3) Terms: If you don’t take advantage of prompt payment terms from your vendors, shame on you. Where else can you get these returns? If we all could get returns of, say, 2% discount for 10 day payment on every purchase we made, we wouldn’t be crying the blues. Take advantage of terms and count the money after payment.
Just following some basic 1-2-3’s today can help in more ways than you might imagine.