Completing the list for successfully managing your cash flow.
By Timothy Brady

In the last post, I discussed the first three areas of concern when managing your cash flow. In this post we’ll finish the discussion with the next four areas. As you read and study each one of these, keep in mind it’s utilizing all seven which will assist you in bringing success to your operation.

Four: 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 you with new hauling opportunities. Growing your business is your objective. Creating diversity in your customers is critical to insuring a positive cash flow. It’s much easier to replace 20 to 25% of your revenue needs than larger percentages. When you have over 50% dependency on a single customer, if he disappears, it can wipe you out.

Five: Staying on top of that ever-changing Break-even Point:

To manage your cash flow correctly, 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 in order to keep your profit bull’s-eye in sight for each load.

Six: Having a strategic plan to deal with inevitable 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. You need an organization which becomes your backbone. Don’t wait until you are in dire straits to locate a commercial lender or a factoring company. Set up the backbone before needing this type of service. Find an accounts receivable collection company that will assist in building a cash reserve for the future, give you quick access to cash, and provide a means to become self-capitalized.

Seven: 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 their personal uses. They’ve failed to include all their costs in determining their Break-even Point developing their hauling rates. Or, they don’t know their Break-even Point and are allowing others to determine their hauling rates. Either way, these trucking company owners are taking out of their business more cash than their operation’s performance allows. As you develop your growth plan, reinvest your profits back into your company. If you are currently living off the profits of your trucking company and not paying yourself a specific salary figured into your fixed costs, you are stealing the money which will help you grow. Set a salary for yourself as a fixed expense, 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 or more. 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.

Good roads and good loads, everyone.

Timothy D. Brady
www.truckersu.com
©2010