Off the Cuff: 8 Steps to Cure the Cash Flow Blues, Part 2

Recognizing the source of cash flow problems in your screen printing or embroidery business is one thing, doing something about them is another. Here's how.
July 7, 2008

By Mark L. Venit, MBA

In Part I, "Cash Flow Blues," we looked at how screen printing and embroidery businesses get into cash flow ruts and introduced you to the evil Cash Flow Monster. Now we'll explore eight specific steps to learn how to gain the favor and blessings of the Positive Cash Flow (PCF) Fairy.

1. Update your books. Having tossed aside the Jewel of Denial, first get your books in order. It'll take a day or two of agonizing effort, but without a clear picture of the task at hand, you can't begin to talk seriously with vendor creditors or to your bank, not if you want a long-term solution.

2. Meet with the loan officer at your bank. Ideally, you'd like to get a comprehensive refinancing of your business, neatly consolidating your debt into a manageable package, hopefully for a livable term and at friendlier rates. The goal here is to get a little breathing room through lower monthly payments over an extended period. Don't expect miracles. But the banker wants to work with you, considering he's in the business of renting money. Nonetheless, he has to adhere to rules and regulations. Yes, he's willing to take some risk, the amount of which will determine what he'll allow on interest rates, the term and, of course, the size of the loan, but he's not in the fantasy business.

If you're denied a good refinancing package, insufficient to your needs or way too costly, don't give up. There may well be another bank that's more accommodating in assessing risk and more aggressive in enlisting new accounts, including yours, as long as they can be convinced your enterprise is viable despite occasional financial shakiness.

3. Tighten your belt. Reduce payroll to the bone. Shorten hours, lay off employees or terminate where you must. Damn right it's tough to do, but what's the alternative? Are you running a business or a social service agency? Make the tough calls.

4. Review your expenses, shop what you can, economize. When was the last time you took a good look at your liability insurance coverage, had your unemployment compensation rates recalculated to reflect recent payroll trends or leaned on vendors for free freight? Can you renegotiate leases or your rent? Once you start looking for qualitative savings, you'll probably find a few items worth the effort. No, price isn't everything, and you don't abandon vendors who've provided good service and worked with you in the past. But you don't have to cheat yourself, either.

5. Sell off old inventory. Get a handle on your holdings, including those oddball samples and other accumulated stuff, especially higher ticket items such as wearables. Offer them as a package to customers who are amenable to assortments if given incentives to buy them, decorated or undecorated. Conduct an in-house sale for employees and their friends and relatives, a factory sale marketed to nearby businesses and residents, or head to a flea market with your stuff. Endeavor also to return these goods, if possible, to the vendor who sold them to you. (No, they don't exactly advertise the fact that they'll take stuff back, but many will as an occasional act of mercy or goodwill. Yes, even eat restocking charges, if they're reasonable. As for all those misprints and rejects you've been hoarding in hopes of at least recovering your cost, you're dreaming. Unload 'em. The sooner the better and at any price. Or donate what you can't convert to cash to charity, where they'll do somebody some good.

6. Escrow Payroll Taxes. Open a separate account for putting aside your total payroll taxes — both your portion and the withholding you do — every week. All too often I observe companies using this tax money for cash flow. Some think it's an easy way to borrow money until they learn the hard way it isn't. What with the interest and penalties IRS or Revenue Canada is certain to assess when you're late, payroll withholding tax money is the most expensive money you can borrow. Forbid yourself to touch this money except when withdrawing it for its intended purpose. It takes discipline and forbearance, and the start-up is quite painful, but once you're "cleansed," you're on the road to PCF recovery. And escrowing the money in an interest-bearing account will not only earn you a few extra coins, it'll make your overall financial picture look a little better on paper.

7. Review your buying habits and policies. Except where you're already getting free freight, group inbound orders so that you receive bigger, heavier shipments, and cut the number of deliveries from your preferred sources in half. Advise your customer service rep there that you want your orders stuffed into the biggest cartons they can find. You'll pay less per pound, incur fewer add-on charges per carton (which most vendors tack on to the tune of $2.00 or more per box), and incur fewer c.o.d. charges. And do the kind of review on sourcing you've been meaning to do but haven't gotten around to doing. You're certain to effect some worthwhile dividends for your effort.

8. Investigate new equipment purchases. It's likely that you've considered acquiring some new, labor-saving equipment. If you can realize measurable payroll economies with it and/or gain competitive advantage, this might be the smart time to buy, if your budget allows. How long is the payout and the payback? Industry-specific leasing companies are hungry for this business, even if your banker isn't. Weigh a possible purchase perhaps not as to whether you can afford it, but whether you can afford not to.
 
Regrettably, the prescriptions above do in fact treat the symptoms, not the illness, which is likely to remain for the near term until the medicine begins to take effect. The correct dosage for each malady will vary from company to company. (Few companies likely need help in all the areas.)

Ideally, positive cash flow could come from increasing sales, but sometimes at the risk of compounding the challenge. Ultimately, PCF won't come from praying for it or reading about doing something about it: It'll come from looking the Cash Flow Monster in the eyes, ending the denial and taking corrective action.

And when you finally meet up with the PCF Fairy, it's best to show the lady some respect. Kiss her hand and tell her you'll be back to see her often.

Mark L. Venit, MBA, is president of Apparel Graphics Institute Ltd., Ocean Pines, Md., which provides management and marketing consulting and proprietary research to apparel graphics companies throughout the Americas and Europe. He also is the chairman of ShopWorks Software LLC, a provider of industry-specific business software. Venit teaches pricing, strategic marketing, salesmanship and other business management topics at the Imprinted Sportswear Shows. He will be teaching a new all-day workshop, "Getting to the Next Level: Surviving and Thriving in Good Times and Bad," at ISS New England, Schaumburg and Fort Worth. You can reach him at markvenit@cs.com.


For Further Reading:
"Off the Cuff: Cash Flow Blues, Part 1"

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