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Financial
Jan 10, 2014

Cash Flow Management - From Hanging On To Planning Ahead

Sponsored Content provided by Robert Rickert - Founder/President, Robert J. Rickert, CPA, PC

As an accountant, I enjoy coaching business owners as much as crunching numbers. The way I see it, numbers don’t tell the whole story unless you put them in context. You’ve got to look at your daily cash flow, monthly and quarterly bench marks, and strategic business plan. What, you don’t have a business plan?
 
Bad habits, outdated practices and even underpowered software can hold your business back in a big, big way.  Here’s a real, hometown example: Crystal Carpet & Flooring Company, which has been selling flooring products in our area for more than 20 years. Even with its long history, the company came close to closing its doors two years ago. Here’s the first in a series of articles on how the company turned things around through smart decisions and real determination. – Rob Rickert

 
Chad Garner got his start in the flooring business as a carpet cleaner before opening Crystal Carpet & Flooring Company in 1993. He’s seen the highs and lows of the Wilmington building boom and has withstood tough times through hard work and a deep faith.
 
But the real-estate downturn that began in 2008 was like nothing he’d seen before.
 
“We didn’t realize what hit us,” Garner said. “We lost over a million and a half (dollars) in builder business.”
 
Struggling to keep the business afloat, he spent up all his cash reserves. The company racked up heavy credit card debt. Garner was hanging on, but just barely.
 
Garner admits that during the boom times, he didn’t follow some fundamentals of good business practice. He didn’t have to follow those principles, he said, because business was very good, driven by heavy growth in the builder market.
 
When that work went away, Garner needed to tighten up some bad habits – and fast. Cash flow was an immediate problem.
 
“He never knew what was coming in or going out in any specific period,” said Robert J. Rickert, CPA, who began working as Garner’s accountant in 2011. “Vendors were paid based on how much they called or whether they threatened to not ship product.”
 
Garner said that because he trusted many of his regular customers, he let them make late payments, knowing they would pay in full eventually. He also did not regularly take deposits for jobs, Rickert said.
 
“He often had to pay for all of the materials and labor himself until the job was done and the customer decided to send him a check,” Rickert said. “That led to having very high balances in his accounts payable and plenty of debt.”
 
Working with Garner, the staff of Rickert CPA created a spreadsheet to track the company’s weekly cash budget. It included the previous week’s cash activity, including beginning balance, cash in, cash out and ending balance, which becomes the beginning balance for the week. The spreadsheet also included all checks outstanding to give a true balance of the business’ available cash.
 
Rickert and his team also added expected receipts to the spreadsheet to give more accurate information for the amount of cash Crystal Carpet had to work with week to week. Then the Rickert CPA team worked with Garner on a system to determine what order the company would pay its bills.
 
“That takes a balancing act between what absolutely must be paid and what are the oldest amounts due,” Rickert said. “They usually aren’t the same thing.”
 
Garner used any funds available at the end of the week to pay off debt.
 
After three months, Garner was current in his accounts payable with all vendors. After six months, he was again able to qualify for discounts for early payment to vendors.
 
And after two years, he had managed to pay off more than $180,000 in debt. At this point Crystal Carpet & Flooring Company is no longer in debt, Garner and Rickert said.
 
“We still have dips but it used to be very erratic,” Garner said. “We don’t have any more credit card fees, which is more efficient.”
 
Garner said Rickert was effective in working with Crystal Carpet because he wouldn’t accept half-hearted attempts at change. And that made a big difference.
 
“He gave us bite-sized strategies to tackle every month,” he said. “Sometimes things are out of your comfort zone. But he it’s been good accountability for us.”
 
Robert J. Rickert CPA, PC focuses on giving its clients timely, accurate and relevant financial information to help them make informed decisions about their businesses. The firm provides customized solutions to meet the specific needs of its clients. Services offered by the firm include CFO and controller services, crisis management, interim financial management, acquisitions and business buying, divestitures and business selling, litigation support, business tax services, and tax dispute assistance for individuals. For more information, visit rickertcpa.com, call 910-319-9127 or email [email protected].

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