Off the Cuff: Cash Flow Blues, Part 1

Cash is king. Learning how to manage it is the key to profitability in good times and bad.
June 20, 2008

The impact of cash flow pressure, usually when the heat's on from suppliers and banks, is by no means limited just to our industry. It affects small companies, particularly family-owned companies, in all businesses.

As we enter the second half of a year marked by serious challenges to the vitality of our economy, perhaps the toughest day-to-day pressure apparel decorators continue to face is cash flow. Even for those who've had a wonderful year so far, positive and comfortable cash flow is still, for many, an enigma. And for those of us who've had a not-so-hot year, cash flow has become a daily nightmare, compounding the pressures on sales and even threatening our viability.

It seems that many of us who go into business have a relatively optimistic, simplistic grasp on the inter-relation of sales, expenses and profits. But in due time, we get some unanticipated, very unwelcome lessons on cash flow. Whether we had any serious exposure to cash flow in business school or at the College of Hard Knocks, learning about this subject first-hand in our own enterprises provides us with an understanding of cash flow realities that you just don't get from textbooks or in the lecture hall.

We learn these very profound lessons in the process of . . .

•    Experiencing a soft period in sales: Not enough business means our overhead eats up an even greater percentage of our total revenues.

•    Watching our sales soar: Times are good and we need more goods and more labor, even though we might not see our money until sometime down the road. Our increasing demand for credit means we accept higher interest charges, and as they mount, it's often with a growing payroll, including the new minimum wage rates that take effect July 24, 2008, (to $6.55 and next summer to $7.25, along with the reality that two-thirds of our states already mandate wage rates higher than the federal minimum wage).

•    Losing track of our payables while we're preoccupied with handling incoming orders and getting them out on time: Yeah, we should be better at keeping our receivables straight, but there are only so many hours in a day and only so many issues we can handle at one time. When things slow down, we'll have more time to attend to such things. And there's the conventional wisdom that goes "since we're busy, we think we must be making money," so we'll be able to pay our bills. And once all our receivables are in, everything will straighten out. Right?! (Well, theoretically, that's how it's supposed to work.)

•    Learning from our accountant that we made some money! Then we ask of her, as millions of businesspeople before us have asked, "Great! Where is it!?"

So, is there any way out? Will there ever be light at the end of the tunnel? Or does the tunnel merge with some black hole at the center of the planet where the Cash Flow Monster insatiably sucks the breath out of small businesses?

Well, yes, there are ways out, and in time, with proper planning and discipline, there's light at the end of the tunnel. But the Cash Flow Monster is ALWAYS lurking, ready to pounce the minute you let your guard down.

The journey to find the light, which emanates from the Mystical Palace of the Positive Cash Flow Fairy, is, however, fraught with terror. To get there, you must first placate The Terminator (your creditors, not Arnold Schwarzenegger) and move with deliberation through the Temple of Doom (your books) on your way to locate the Jewel of the Nile. Er, the Jewel of De-nial. Once you get your hands on it, take a deep breath, make a wish and cast the Jewel of Denial  — excuses, procrastination and alibis  — over the cliff and into the sea. The Positive Cash Flow Fairy will soon reveal herself to you.
 
In the second and final part of this discussion, we'll catalog eight specific steps for improving cash flow in less mythic terms and show you how to gain the favor of the Positive Cash Flow Fairy's powers and blessings.

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.

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