Moving Words – Risk II

You only do good work when you’re taking risks and pushing yourself. – Sally Hawkins

As we continue the blog post on Risk, we’ll cover four additional business risks moving and storage companies face and the solutions to these perils. We’ll discuss when and how to issue credit to your customers, how to make sure you own the company-and it doesn’t own you-and finally, how to think like a banker, so you’ll be bankable.

• Give credit only where credit is due. Operations people tend to be quick on the issuing credit trigger, because their objective is to load the trucks and keep them rolling. Whenever you allow a shipper to pay on credit, you become a lender. If done with limits and controls, issuing credit can be an effective revenue enhancer. Done haphazardly, it can lead to a cash flow nightmare and you risk business failure. People in the commercial lending industry look at what is called Days Sales Outstanding (DSO). This is how many days from when a shipment was dispatched or delivered to when the hauling invoice is paid in full. If you receive final payment on a delivered shipment which exceeds 50 days from dispatch or 40 days from delivery, you have a problem. The more accounts which fit this description, the bigger the crisis. You must be like a banker; if you’re going to issue credit, make sure your shippers and brokers can pay and pay in a timely manner.

• Do you own a moving company or does the moving company own you? A The reason: lack of investment in the company. One of the biggest causes of business failure is when an owner unknowingly steals the cash from their business for personal uses. They’ve failed to include all their costs in determining their break-even point and hence into developing their rates. Or, they don’t know their break-even point and are allowing others to determine their hauling rates.  Either way, these trucking company owners are taking out of their business more cash than their operation’s performance and conditions will allow. This is why it is important for owners of a company to include in their expenses a fixed salary. Anything above that salary must be in the form of dividends based on the financial success of the business once it has been capitalized. (Having the funds set aside for sustainability and growth.

• Think like a banker. If you are going to establish a creditable relationship (pun intended) with a banker, you must approach your business from their point of view. Bankers don’t lend money without doing their homework. They’ll have articles from trucking industry publications and from banking resources like Journal of Commercial Lending or industry-specific studies from the Risk Management Association that will be in your file alongside your balance sheet, credit report, financial statement, profit & loss statement and your business plan. You need to acquire the same information so you’re up to speed on what’s going on in your industry. Do your homework, too.

• Selecting the correct software to more efficiently operate your varying departments is both a daunting task and one filled with a multitude of risks if not done carefully and with due diligence. Know your plans for growth and make sure your software will allow you to move forward to meet those goals. There’s nothing worse than to be in a growth stage and suddenly realize your software won’t meet the needs required to advance. Ideally it should be able to grow with your business. The next one is security. In the current world of cyberattacks and hacking having software that is encrypted and having other digital security components is extremely important. It is also helpful to designate at least one employee who is responsible for maintaining the security of the system once it is up and running. Involve the end users in the selection process for their respective departments. If it’s too complicated or the it takes a long learning curve to get up to speed, this can cause huge delays in providing services to your customers. It’s important through these discussions to define the needs and wants of both your customers and the employees with which the software is meant to help. Once software is selected make sure to assign an internal project manager who has responsibility for the implementation, but also authority over employees to make the change happen.

Knowing your break-even point will help determine your daily and weekly cash flow needs. Knowing your DSO (Days Sales Outstanding) and your customers’ credit worthiness will help determine when to issue credit. Listening and researching how to improve your operation will increase efficiency and investing in your company by leaving enough cash in the company’s coffers will make the worst of times your best of times. Becoming bankable will help you achieve self-capitalization, and self-capitalization leads to sustainable growth and success. Having the correct software for the job is what makes your operation hum.

 

My motto in life is ‘Take risks;’ you don’t have a voice if you don’t. You have to venture outside your boundaries. That’s what life’s all about. – Kelly Wearstler

Timothy D. Brady © 2018

To contact Brady, go to www.timothybrady.com