Cash Reserves (too low)

wpowers11
Contributor II

We all know that CASH is KING in the home services business. Like every other category we need to manage this. I have seen over the years that a business can have a great bottom line on their income statement but be a cash poor business because of the lack of managing the business on the financial end. We are about to go into a shoulder season where our calls will diminish which means cash coming in will be less than in the previous months. If we do not manage this, we will have to get bridge loans from lenders and at today's interest rates this can lead to financial struggles down the road. It is no fun playing catch-up. There are eight things we want to look at if we are having clash flow problems. Although some of these things may not be pleasant for you to stay afloat you have to look at all scenarios.

  1. Your Current Ratio is sub-standard.
  2. You’re billing your customers.
  3. You’re discounting.
  4. You’re buying jobs—doing work that is creating cash, yet not making money.
  5. You’re not generating enough revenue
  6. You have fully depreciated assets that are not being utilized.
  7. You have excessive inventories.
  8. You’re experiencing theft and embezzlement.

Management Actions (solutions):

  1. Improve your current ratio.                                                                                                                                               The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year.
  2. Stop billing your customers.
  •   Always collect at the point of service.
  •   Make this a standard policy in your company.
  •   Explain to your selling technicians and/or comfort advisers the necessity for this practice.
  •   Train your call takers to remind callers that payment upon the completion of services is required.  They also should ask callers what method of payment they will be using upon completion of the job.
  •   Train your technicians on how to gain authorization to perform any work, verify the method of payment, and then ask for payment upon completion of services.
  •  Should technicians experience troubles receiving payment from a client, make it a policy that the technician contacts the sales manager/ops manager/general manager while still on the job.
  •   Start accepting credit cards.
  •   Make this a standard policy in your company.
  •   Explain to your technicians and/or comfort advisers the necessity for this practice.
  •   Train your call takers to remind callers that payment upon the completion of services is required.  They also should ask callers what method of payment they will be using upon completion of the job.
  •   Train your technicians on how to gain authorization to perform any work, verify the method of payment, and then ask for payment upon completion of services.
  •  Should technicians experience troubles receiving payment from a client, make it a policy that the technician contacts the sales manager while still on the job.
  •   Start offering financing.
  •   Offer all types including revolving, installment, and secondary.
  •   Make it a standard policy in your company that all financing options are presented on every call.
  •   Make sure that your selling technicians and/or comfort advisers always have the necessary applications before heading to an appointment.
  •   All selling technicians and/or comfort advisers should turn in their quote sheets.  Each sheet should show multiple options with the financed monthly amounts.  Along with the quote sheets, all credit applications must be submitted to the office.
  •   If selling technicians and/or comfort advisers are not offering financing or are uncertain how to offer it, increase your training on this subject.  It’s imperative that they know its value to the client, to them, and to the company.
  •   If a selling technician and/or comfort advisor fails to offer financing, consider contacting those homeowners to share with them that you offer financing.  You may be able to save a sale.
  • Run a weekly report of sold jobs compared to financed jobs.  Track the closing ratios on financed jobs versus cash jobs.  The closing percentage on financed jobs should be much higher.  Share this information with your sales team so they can see the benefits of financing.

In the ST platform turn on the 3 option presentation and the finance and cash options. These configs are imperative in collecting today.

       3. Stop discounting your services.

  •   Stress to your selling technicians and/or comfort advisers that discounting should only be an absolute last resort. 
  •   If it’s absolutely necessary to discount, selling technicians and/or comfort advisers should receive approval from the sales manager/ops manager/general manager. 
  •   Review the situation with the selling technician or comfort advisor upon the completion of the call. 
  •   Constantly review invoices and work orders to identify any discounts that were not approved.  When one is identified, meet with the selling technician or the comfort advisor to discover why this occurred.  Explain that the sales manager/ops manager/general manager should be contacted first.  Use it as a training exercise.

  4.Evaluate your job costing.                                                                                                                                        This can be done in the ST platform and should be on your sales manager/ops manger/ general manager To Do       List.

 5.Review ALL goods and services at an appropriate margin and KPI.

  •  REVENUE PER LEAD
  •  AVERAGE INVOICE
  •  CLOSING RATIO
  •  TECHNICIAN GENERATED LEAD PERCENTAGE
  •  CALL BOOKING PERCENTAGE
  •  REPLACEMENT AVERAGE SALE
  •  REPLACEMENT CLOSING PERCENTAGE
  •  SERVICE CLOSING PERCENTAGE
  •  SCHEDULED SERVICE REPAIR AVERAGE
  •  SCHEDULED SERVICE CLOSING PERCENTAGE
  •  CALL BOOKING
  •  LEADS GENERATED PER DAY
  •  REVENUE PER REPLACEMENT LEAD

 

  • 6.Evaluate if you have depreciated assets that are not being utilized. 
  •   Sell those assets that are no longer needed.
  •   Leverage your depreciated assets.

 

  • 7.Eliminate excessive inventory.
  • Sell or return as much as possible.
  • Negotiate a buyback program.

 

  • 8.Evaluate if you are experiencing theft.
  • Establish accounting and fraud prevention controls.
  • Increase the level of security in your warehouse.  Only certain key managers should have keys.  Contemplate adding cameras, alarms, and other devices to reduce the likelihood of equipment and materials being stolen.

If you monitor and manage your cash like you do other parts of your business you will have less stress and a better work environment for them all.

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