Ruth King
Contributing Writer
Profitability Revolution Paradigm
Question from a reader: My business is growing rapidly. Lately I’ve noticed that I’m taking longer and longer to pay my bills. My financial statement says that I am profitable. What is going on?
If you notice a slowdown in being able to pay your bills it’s one of two things: it’s taking longer to collect your money or you are growing rapidly and have unprofitable pricing. This month I will cover cash and collections.
One of the biggest mistakes that contractors make is to think that profits are cash. Profits are not cash. You can’t take them to the bank. Profits are turned into cash when you collect the cash for the goods and services you provided your customer. Cash is the lifeblood of your business. Without cash you can’t survive. Profits don’t pay payroll; cash does.
COD is the best way to get paid. You can’t go into a grocery story without paying. Even doctors expect to get paid at the time of service today. All residential HVAC service and replacement should be COD.
Unfortunately for commercial customers, billing is the accepted norm. Make sure you bill for your service and replacements the day they are completed. This way you get your money sooner. Get deposits for work or progress payments whenever possible. Most times all you have to do is ask. Most customers will agree to deposits and progress payments.
Watch your accounts receivable. If your terms are net 30 days, you must receive payment by that 30th day. On the 31st day, if you haven’t received payment, make a friendly telephone call to inquire about your money. The squeaky wheel does get the grease.
When you are setting up a new client that will be billed, call their accounting department to see what their payment requirements are. You might need a purchase order with your invoice, certain managers signing off on your invoice, etc. Make sure you get everything you need sent with your invoice. This way there won’t be a problem because they don’t have a piece of paper they need. In addition, you can make friends with the people in accounting so that if there is a problem later, you have already established a relationship.
Weekly cash flow reports help you track your cash influx and outgo. They look at the cash coming into the business, the cash going out, and estimate whether you have enough cash needs for the following week.
If you’d like a copy of a weekly cash flow report or for more information contact Ruth King at: ruthking@hvacchannel.tv.
Ruth King is CEO of HVACChannel.tv and a nationally recognized HVAC expert. You can reach her at ruthking@hvacchannel.tv or review her manuals at www.hvacoperationsmanual.com.