Business Tips for New or Relatively New Businesses – Part 3 of 3

By Tom Grandy, Founder

Parts 1 and 2 of this series covered several “tips” for new or relatively new company owners.  Part 1 covered labor pricing, Chart of Account, QuickBooks tips and the use of partners like your CPA.  This past month we talked about joining a mixed group, saving on a weekly basis, creating a 100% customer satisfaction program, utilizing a totally separate payroll checking account, a formal collections policy, and getting deposits on all jobs.  That leads us into the final part of our three-part series that will over several more areas.

  • Collect Payment on the Spot – Cash flow is king. When calling service customers to inform them the tech is one the way, ask a question.  “Mr. or Mrs. Jones, will you be paying by cash, credit card or personal check?  We don’t invoice.”  This preps the customer and helps the tech collect at the completion of the repair. 
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  • Setting Up a Line of Credit – Every company, no matter how good their cash flow may be, needs to have a line of credit in place. When do you set it up?  When you don’t need it!  That’s right, set it up at the bank when things are going great and there is money in the bank.  It’s hard, if not impossible, to set up a line of credit when you need it.  It needs to be setup before the need arises.  Just a few comments on a line of credit.
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  •  Use the line of credit for its “intended” purpose. The intended purpose of a line of credit is for short-term borrowing against receivables.  When the company finds out that $25,000 check that was expected today is not going to arrive for 30 days, that is when the company goes to the line of credit.  The $25,000 is borrowed, bills are paid, payroll is taken care of, etc.  However, when that $25,000 check comes in, the line of credit needs to be paid back.  That is how a line of credit is supposed to be utilized.
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  • Do not borrow money on your line of credit for general operating expenses. If the line of credit is not being used to fund receivables, take that as a red flag.  There is something else going on within the company that is causing the short fall.  Find out what it is!
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  • If the company has a line of credit set up but has not used it in a year or two, do this. Borrow $10,000 or $20,000 on it and put the money in a saving account at a different bank.  Next, pay the money back over the next 30, 60 or 90 days.  If the bank does not see activity on the line of credit, they tend to cut it off without warning.  Show activity, even if you don’t need the money.
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  • Set Up a Liability Account for Credit Cards – Keeping credit cards paid off can be a big deal. Money gets spent (placed on a credit card) and is often forgotten until the statement arrives.  A simple way of handling this situation is to set up a physical liability account at your local bank.  Each time a credit card is used, simply transfer the money online from the business operating account to the liability account.  This ensures all credit card money is set aside and it eliminates the false assumption that the dollars are in the operating account to cover the bill when in fact they may not be.  When the bill comes in, the company simply transfers the money, again online, from the liability account back into the operating account and pays the bill.
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  •  Pay Material Suppliers on Time and Take Discounts – Materials, parts and equipment make up a huge portion of what the company spends money on each month. Many companies, especially those that are not priced properly, find themselves falling behind in timely payments to their suppliers.  On the flip side, companies that pay on time can often earn significant discounts over the course of a year.  Consider the following:
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  • Proper Pricing – Developing “profitable” hourly rates is fundamental to paying suppliers on time. If the company is unable to pay its bills, not just materials suppliers, take it is a red flag that labor rates need to be increased.
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  • Deposits – Fundamental to paying suppliers on time involves getting deposits on jobs. The deposit money when properly handled, will fund the payment of material suppliers…which is the next point!
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  • Properly handing deposit money – Getting a deposit is one thing. Handling it properly is another.  Once the deposit in secured, handle it like credit card purchases.  First, deposit the money in the operating fund so it’s accounted for properly.  The same day, transfer the deposit money into a liability account so it doesn’t show up in the operating account.  Do this on all jobs sold.  When the company is invoiced for materials, parts and equipment purchases simply transfer the dollars from the liability account back into the operating account and pay the bill.  By the way, handling deposits in this way will also allow the company to pay on time, therefore receiving discounts when offered.  One to three percent of a company’s total material purchases can add up to a lot of money on an annual basis.
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Labor Pricing Software is not an accounting program, it is a modeling tool to determine proper labor pricing and to develop monthly cash-flow projections. This software has been the top computer-modeling software in the trades company for over 15 years! Version 6 has been totally re-written and now will allow you to:

  • Create proper hourly rates, by department, including breakeven rates.
  • Month-by-month, department-by-department cash flow budgets.
  • Cost of non-billable time including projected lost revenue.
  • Total breakdown of your hourly rate

The software is normally $399.95 but this month it is only $299.95. Order today.

The second Website Special is our Money Matters series covers the monthly review that every business owner should be conducting to make sure your business is staying on track financially. This process will help to identify issues when they come up and allow you to make changes before they become a real problem.  The normal price is $159.00 but this month it is only $139.00. Order today