The Dr. Is In: Fresh Start, New Beginnings
The New Year has begun and this can be a fresh start for many electronic systems contractors. According to the experts, the economy is beginning to rebound. And in an (albeit unscientific) poll conducted during CEDIA's December Survival of the Fittest Webinar, fifty percent of the participants see their volume increasing in 2010.
What New Year's resolutions have you made for your business? What changes are you going to make to improve profitability and sustainability in your company? How can you take advantage of the start of the year to get a better handle on your financials and see the value of running your business by the numbers? Here are some New Year's resolutions that you should consider.
Keep better track of customer deposits
While many ESCs experienced moderate to significant decline in volume in 2009, those companies that poorly managed customer deposits have struggled even more with cash flow troubles. Collecting money from customers prior to purchasing equipment allows you to use the customers' cash instead of yours. That's great as long as you actually use their cash to purchase equipment for their jobs. The problem is that as you close out current jobs, and they are not as profitable as expected, you may have ended up using cash for new jobs to finish current jobs. This creates a difficult cash crunch, causing you scramble to sell new jobs just to find the cash to finish old jobs.
If you have found yourself in this predicament, what should you do? As volume increases, you may find the need to continue this dangerous practice just to keep the business running. The key is to keep track of all customer deposits and determine each week how much customer money you have collected but not earned. Compare this to the money in the bank to determine your "Customer Deposit Deficit." This amount needs to steadily decrease. If you find it increasing, you are not managing jobs correctly and are not digging yourself out of this hole. Unless you are moving to a financial position where you are only using current money for current jobs, your recovery will be short-lived. Start the year off right by tracking your "Customer Deposit Deficit" and set a goal of decreasing this number, with the eventual goal of converting this to a Customer Deposit Surplus. This will help you get back on financial (and cash flow) track.