2002 Fall

Keys to Financial Management: Cash Flow John Camphouse, CFO

Running a successful portable restroom business requires practicing sound financial management. In this issue of JohnTalk, and the two that follow, I will be reviewing three key topics:
1. Cash Flow, 2. Knowing True Costs, and 3. Working with Budgets.

1. Cash Flow
Think of cash flow as the lifeblood of your company. What matters most is to have enough on hand and to keep it flowing. Even a temporary interruption in cash flow could mean lights out. Since the portable restroom business tends to be seasonal, you need to consider your cash reserves, your open credit line, as well as your current balance.

Cash flow can be tracked daily, weekly and/or monthly with a cash flow report. Your cash flow report should include a Beginning Balance, Payables (how much you owe), Receivables (how much is owed to you), and your Ending Balance.

Once you get a handle on current cash flow, it is also necessary to make projections for the months and year ahead. This is especially important in our business since peak earnings come at the end of the season and peak cash expenditures come many months later at the beginning of the next season. If your cash reserves don’t last through your slower seasons, you won’t be able to purchase the supplies you need to make your next peak season a success.
What’s more, with an annual plan, you can make adjustments for large recurring expenses such as taxes, equipment renewal, and seasonal employees.

During a company’s daily and monthly operations, cash is received and disbursed. It won’t always balance with a steady increase in the company’s wealth—even if you’re making steady profits.

Major investments will be needed for growth or to win larger contracts. Your cash reserves or credit line should be large enough to handle these cash outlays, or you’ll need to put growth on hold until your business can grow without becoming overextended. A common mistake aggressive small companies make is to underbid a large contract. Big jobs can make cash flow statements look great for the short term. However, can your company support the equipment and employees needed to handle big jobs six months after the job has ended? This is the kind of question an annual cash flow, showing individual months, can answer for you.

Don’t worry if over the short term, your cash balances go up and down. As cash comes in and payments go out, balances may even fall below zero. Those are times when utilizing your line of credit may be necessary. Using lines of credit and or short-term extensions with your suppliers can be one of the ways to meet your financial challenges during times of tight cash flow. Lines of credit with your bank are best negotiated when cash flow is good. It’s much easier to negotiate a short-term loan before you need it, than at the last moment in a crisis.

If you have a good grasp of your company’s cash flow, you can weather bad times without suffering permanent negative consequences. But without keeping a close eye on the lifeblood of your company, you could fall into the most common trap of all—running out of money, even though your business may be doing well.

Below is a sample chart to get you going. First, track your actual cash flow from prior months, then prepare a projected cash flow for upcoming months with growth in mind. In the next issue we will talk about costs. See you then!

John Camphouse, CFO • PolyJohn Enterprises, Inc.

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