Cash is King! Cash flow is an underated, overlooked but very critical element of any business. In fact, we submit it is the most important aspect of your business that will determine your success or failure. Cash is the lifeblood of your business. It is the ultimate statistic that combines and distills sales and expenses to one figure: Cash on hand. How can you maximize cash flow in your business? Let’s examine some key factors.
Borrow for a longer term with no prepayment penalty. Let’s say you start a laundromat and purchase $ 150,000 of equipment. Being anxious to become debt free you decide to borrow that amount for 5 years. At 8 % interest your monthly payments are about $ 3040. You will have to pay that amount for 60 consecutive months regardless of your sales volume. It is Fixed. That same amount borrowed for 7 years results in monthly payments of $ 2340. An 8 year note requires $ 2120 per month. Assuming that it will take several months to grow your volume why pay between $ 700 to $ 1000 more per month? Once sales exceed your break even point you can always make extra payments with the extra cash.
Beware of high rents or high escalator clauses in your lease. Good locations usually command higher rents than mediocre locations. Nonetheless, do not get carried away to signing a lease with high rent from the start or annual escalators. Some free rent while outfitting your store ( 90 days perhaps ?) plus a lower rent the first year or two while developing your business is worth asking for. How about a fixed rent for the first term of your lease or the first three years? A high rent ( $20 @ squ ft ) increasing every year for 5 years is a hefty price to pay. Like your note payment, this payment is fixed regardless of your monthly volume. You are what you negotiate.
Use installment payments whenever available. Insurance is a good example. Say your total annual premiums are $ 6000. Try to pay $ 500 @ month for 12 months. If that is not possible how about $ 3000 down and the balance over 12 months.
Offer prepayment for Wash, Dry, Fold or Drop off Dry Cleaning. Your laundromat customers pay for your service as they use it. Why not your other services? You will be paying labor and utilities for your Wash, Dry, Fold service. You will pay daily or weekly for Dry Cleaning service. Why wait one, two, three or more weeks to get paid by your customer when they pick their order up?
Businesses fail when they run out of money. That means Cash. Preserving cash at all times especially when you first open will put you on the road to success. Preserving cash requires keeping your fixed costs as low as possible. Remember your fixed costs are due regardless of your sale volume. If you think of your business as generating cash as opposed to only generating sales you may be surprised how much cash is left over at the end of the year.