Conserving Your Cash

Nov 07, 2005

It’s been said before that “cash is king.” It’s also been said that you can be profitable and still go out of business if you run out of cash. That said, our industry— that of A/E/P and environmental consulting— is one of the worst when it comes to collecting our money. We have ARs that average 70, 80, 90 days— and more— and that’s horrendous. What it means is that if it’s that hard to collect our receivables, we better be darn sure to conserve cash otherwise, so we can pay our bills. Here are a few suggestions on how to conserve cash that I’ve found to work: New branch offices. Why it has become acceptable for firms in this business to wait three or five years for a new office to become profitable— and even longer to break even on a cash basis— is beyond me. It makes no sense whatsoever. How many all-new companies (starting with NOTHING) could survive if they were this patient? The problem is how we tend to open these offices. We take on too much space, we hire too many people, and we plan for growth, most of the time because those of us who know better are afraid to alienate our new office manager who thinks he or she needs all this overhead. It’s a real killer of new office financial performance and wastes a lot of CASH! We should start small, hire very slowly, and make darn sure new office managers are at least billing enough to cover their own raw labor, in total! Leasehold improvements. Unless you have tons of money in the bank, no debt, and are in a super-hot market for office space (think San Francisco prior to the dot-com bust!), you should not be spending cash for fitting out office space. Get your landlords to pay for it and roll the cost into your lease. Conserve your cash for things you really need— like labor, marketing, and technology. Leasing. Some people are all hung-up on owning everything. I completely understand the philosophy as I hate paying for anything over time. That said, it may be a bad use of your scarce cash resources to go out and buy every company vehicle, computer, or other piece of technology that one needs when you can lease it. Leasing almost always minimizes up-front cash required when compared to ownership. And don’t pay the documentation fees. They are nothing but profit-builders for the company that asks for them. Refuse to pay, and four of five times you can get away with it. Vendors and suppliers. I suggest you start having all your suppliers fill out what’s called a vendor form. On the form, be sure to ask for the name of company, payment address, phone, etc. But also ask about credit limits they are willing to grant you, extended payment terms offered, etc. You may be surprised to find that when asked to fill out such a form that suppliers sharpen their pencils due to fears about losing your business and make concessions that will aid your cash flow. Hiring. Watch your hiring practices closely. Do not hire right before your historical slow billing periods such as holidays. We often advise clients to hold off on hiring anyone in the fourth quarter beyond a critical difference-maker because of the negative cash flow impacts. Why bring labor on during a time filled with holidays and parties and a historically shorter work-week for salaried people? Makes no sense at all! Bonus payouts. Maybe you cannot afford to pay out huge chunks of cash for bonuses? Many firms cannot. It may even be helpful to staff longevity if you defer some of those payments to the following year or years as the money owed becomes a “golden handcuff” of sorts. Many firms on the Inc 500 list of fastest-growing privately held firms were started with less than $20,000. These firms never would have been able to grow so quickly had they not been super careful with their cash. Maybe it’s time you tightened things up and improved your liquidity as we head into the depths of winter. You might be glad you did! Originally published 11/07/2005

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Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.