is to make sure the cash flows quickly from
the till to your bank account. The key to fast
cash inflow is to make it as easy as possible
for your customers to pay you.
As we slowly become a cashless society, it’s important for
retailers to provide customers with other options such as
mobile, online, Flash or Near Field technologies, or credit/
debit cards. They’re faster, can lower your processing
costs, and reduce your risk to theft, fraud and counterfeit
currency. But most importantly, your customers are
demanding it!
If your franchise has accounts receivable, it can be a little
more complicated. Remember, if you’re doing your best
to manage your cash flow, so are your customers, which
means that they’ll try to pay you when it’s advantageous
for their business. If payment is overdue, be firm. Provide
options and follow up with your customers. To motivate
your customers, you may want to consider offering terms
or discounts for early payment. Typical discounts range
from 1.5-3% if paid within a specified term. A very common
term is 2% 10 Net 30, which means a 2% discount if paid
within 10 days or full payment due within 30 days.
Taking advantage of 2% 10 is equal to approximately a
73% annual interest rate. You can also consider charging
interest on overdue payments. Although these strategies
can be effective, any increase in cash flow should be
weighed against the cost of discounts or loss of customers
as a result of credit policies.
…spend it with care.
Considering the expenses most franchises have from
week to week, monitoring spending may be easier said
than done. However, managing your expenses – both
discretionary and non-discretionary – can be made
easy with an online banking application, various tablet
applications and/or accounting software.
You’ll know exactly what’s been paid and what’s still due, in
real time. Online banking is not just access to your business
account to see what has cleared or which deposits have
been made. Many of the banks have improved their online
presence with tools that can monitor your expenses, can
schedule future utility payments, process payroll directly to
employee accounts or debit customer accounts, basically
increasing your ability to manage the timing of your cash
inflows and outflows.
When it comes to expenses like supplies, you may qualify
for discounts for early payment. But it’s important to
calculate if the discount is worth taking. Early payment
may have repercussions on your cash flow, your credit line
and in lost opportunities that may arise.
Managing inventory is another cash flow challenge,
especially in the food industry given the nature of the
inventory. A good approach is to tie your inventory levels
to your predicted sales levels and then monitor your
inventory levels regularly. Know the margin, sales and
profitability of each product and stock accordingly. Be
mindful of inventory storage, especially with high rent
locations. Some other factors to consider: what are your
suppliers’ delivery schedules and can they deliver off hours
with access to your premises? If they can deliver more
often, you could employ ‘just-in-time delivery strategies.’
Wage expenses, along with lease and cost of goods, are
typically the biggest costs on your business.
Before hiring any new employees, you should ensure that
you’re maximizing your current employees’ productivity.
If you’re considering hiring contractors or part-time
employees, hire wisely and for the long-term. After all, it’s
expensive to train an employee.
What to do if your cash flow changes
What do you do if you miss a payment to your supplier?
It can happen to the best-managed businesses, but it’s
not the end of the world unless it becomes a pattern.
Recurring late payment may force your supplier to put
you on a cash-only basis, which can further impact your
business.
In many ways, your success is their success. So keep your
suppliers informed if you’re going to be late so that you
can make other arrangements, such as extending your
payment terms or making partial payments. Then revisit
your cash flow statement, your sales forecast and your
financing arrangements. The key is to communicate and
keep everyone informed of any changes in your plan.
This article originally appeared in the FranchiseCanada
Directory, and is reprinted with the permission of the
Canadian Franchise Association.
Paul daSilva is the Director of National Franchise
Markets with RBC Royal Bank.
WINTER 2014
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