Keep more money – Nursery management
Cash flow is the lifeblood of any business. According to a study by the American bank, poor cash flow management is the cause of 82% of bankruptcies of American companies. While seemingly counterintuitive, many experts advise putting cash flow management above profits.
While profits are how a nursery survives, an inability to manage operating cash flow can mean problems that a profitable accounting period might not be able to compensate for.
Another study, that of Intuit, found that 61% of small businesses around the world have cash flow problems and 32% are unable to pay vendors, pay back pending loans, pay themselves or their employees. due to cash flow issues.
Cash management: 101
Essentially, cash flow is nothing more than the movement of money in and out of the nursery business. Cash flow in the business comes from the sale of goods, products or services. Money flows out of the business for supplies, raw materials, overheads, and salaries in the normal course of business.
Adequate cash flow means a constant flow of money through the business in time to be used to pay those bills. Good management of the nursery’s cash flow can have a significant impact on the bottom line of the business.
More often than not, the company’s cash flow will lag behind its cash outflows, often leaving the business strapped for cash. This shortage, or cash gap, represents an excessive outflow of cash that may not be covered by an inflow for weeks, months, or even years.
Good management of the cash flow of the operation allows this cash gap to be reduced or completely closed before it reaches the crisis stage. This is typically accomplished by examining the different elements that affect cash flow from operations – and by examining the various components that have a direct impact on cash flow. This analysis can provide the answer to a number of important questions such as:
- How much money does the business have?
- How much money does the business need to operate – and when is it necessary?
- Where does the business get its money and spend it?
- How do operating income and expenses affect the amount of money needed to run the business?
The “in” of cash flow
In a perfect world, there would be an inflow of money, usually from a cash sale, every time there is an outflow. Unfortunately, this happens very rarely in an imperfect business world. Thus, the need to manage the cash inflows and outflows of the business.
Obviously, faster cash flow improves overall cash flow. After all, the faster the money can be collected, the faster the business can spend it. In other words, accelerating cash flow allows a business to pay its own bills and obligations on time, or even sooner than necessary. It can also allow the business to take advantage of trade discounts offered by suppliers.
An important key to improving nursery cash flow is often as simple as delaying all cash outflows for as long as possible. Naturally, the operation must meet its exit obligations on time, but delaying cash outflows maximizes the profits for every dollar in the operation’s own cash flow.
As mentioned, cash outflows are the movement of money out of the business, usually as a result of paying expenses. If the business is to resell commodities, the most important exit will likely be for the purchase of inventory. The biggest output from a nursery most likely involves the purchase of plants, raw materials and other components necessary for the growing process. The purchase of fixed assets, the repayment of loans and the payment of operating invoices are all cash outflows.
A nursery can regain control of its finances by adopting the best practices and the right invoicing tools. A good first step is to know how the operation pays its bills.
Many credit cards have a cash back program. Even though the program only offers 1% cash back, that could work out to be a significant monthly amount for many nursery owners and operators. Of course, since credit cards tend to have a higher interest rate, they should only be used if the balance can be quickly paid off in full.
Another key step in cash flow management is improving the invoicing process. A nursery can adopt incentive strategies to get paid faster. A company with a 10% gross margin that offers a 2% discount in exchange for prepayments might not be suitable. On the other hand, giving out little extra services might work. Incentives can include the following:
- Small additional services
- Discount for early payment (balance paid before a certain date, or annual vs monthly invoice)
- Greater flexibility (for example: a deposit is required to reserve a delivery date).
Some customers are just late payers and need to be pushed. The way the dunning is handled, however, can significantly affect the collection process. The timing and the quality of the content of the message are the two main factors of success or failure of these productions.
The way the nursery is paid affects not only its profitability but also its cash flow. Today, paper checks remain the standard form of payment. However, paper checks are slow, very susceptible to fraud, and come with “hidden costs” such as extra work and administrative processing. They are also insufficient for recurring billing.
Something as simple as asking customers to switch to electronic funds transfer (EFT or ACH), offering incentives, etc., are some of the tips that can be offered for faster, safer, more secure payments. reliable and less expensive.
Improve cash flow
Profit is not synonymous with cash flow because, as mentioned, cash flow and profit are not the same. There are many factors that make up cash flow, such as inventory, taxes, expenses, payment of accounts, and accounts receivable.
Good management of cash outflows involves monitoring and managing operating liabilities. Managing cash outflows also means following a simple but basic rule: Pay your bills on time, but never pay bills before they are due.
Having a cash reserve can help any business survive cash flow gaps. Applying for a line of credit from the bank is one way to build that cash reserve. Once qualified, lenders will grant a predetermined credit limit which can be withdrawn if needed.
Another option could be frugality. If you aim to keep the nursery lean, evaluate it. Is the purchase of new equipment really necessary? Is Hiring New Employees Really Profitable? Weighing the pros and cons of all the needs and wants of the business allows the business to conserve cash flow and avoid unnecessary expenses.
Remember, the cash flow gap in most businesses is just an outflow of cash that might not be covered by an inflow for weeks, months, or even years. Any business, large or small, can experience a cash flow deficit – that doesn’t necessarily mean the business is in financial difficulty.
In fact, some cash flow gaps are created intentionally. That is, a business owner or manager will sometimes deliberately spend more money on other financial results. For example, a business may purchase additional inventory to meet seasonal needs, take advantage of a quantity or prepayment discount, or may spend additional cash to grow its business.
Cash deficits are often filled by external sources of finance: revolving lines of credit, bank loans, and trade credit are just a few external financing options available to most nursery owners and operators.
Cash flow based loans are based on the value of operating cash flows. If the transaction has a large cash flow, it can be used to secure large loan amounts even if there are few business assets. Although cash loans can be expensive, they play a key role in a growing business.
One advantage of cash loans is the repayment period. These loans are generally designed according to the needs of the borrower with repayment periods ranging between five and seven years. And, because cash loans are different from asset loans, collateral is seldom required.
Evaluating the amounts, timing and uncertainty of cash flows is the most fundamental goal of cash flow management. A positive cash flow indicates that the company’s cash flow is increasing, allowing it to pay off debts, reinvest in its business, return money to shareholders, pay expenses, and provide protection against financial challenges. unforeseen. The impact of negative cash flow can be profound with so many people operating on such thin margins that frequent missed opportunities will put them on the path to closing their doors.
Every business can improve its cash flow. Of course, for that to happen, they need to adopt best practices in the way they bill, track customers, and monitor outings. Without the help of a trained professional, these cash flow best practices can be more difficult to achieve.