Using a Cash Gap Plan in a Service Company in 2023

A Cash Gap Plan In A Service Company

This week I’m writing about using a Cash Gap Plan in an service company. A Cash Gap plan will help you to quickly collect your outstanding receivables, get your customers to pay faster, and negotiate better terms with your vendors to improve your cash. I have been writing about some of my hero clients and how we are able to achieve significant results from our work together. We have 36 Coaching Modules, which are areas within your business that when we improve your performance in these areas, your business will run better.

Robert’s Service Company Challenges

Robert is this week’s small business hero. He owns an service business that has been in business for over 50 years. When I met Robert he was interested in selling his business. Although he had been successful in growing his business, it was having financial problems. To make things worse a very large customer had defaulted on a payment of nearly $200,000. This event had him thinking about filing bankruptcy. He was working very long hours and was constantly interrupted by customers and employees. This was affecting his health and personal relationships with his family, in particular, his wife. He was spending very little time with them.

Solutions for Service Company: Strategic Plan, Team Deployment, Tactical Marketing, Lean Program

We decided to implement several of our Coaching Modules to address his situation. These included a Strategic Plan, Team deployment meetings, Tactical Marketing Plan, but most importantly a Cash Gap Plan, Time Management Plan, and a Lean Program.

A Cash Gap Plan for Robert’s Business

A Cash Gap Plan is all about carefully monitoring your plan to improve collections, lengthening your payments with vendors, increasing your prices aggressively as possible, and eliminating operational efficiencies. In all things in life, we tend to get what we focus on. During our coaching sessions, we focused on his cash flow.

Time Management for Robbie’s HVAC Company

We developed his Strategic Plan and held team deployment meetings. Additionally, we discovered a serious time management problem. Employees and managers were constantly interrupting one another during the day. This wasn’t causing chaos and stress in the business. We began to track interruptions and developed policies and strategies to reduce distractions. We also implemented team meetings in the business.

Results for Robert’s service Company

As a result of these strategies, his results were immediate and dramatic. Here’s what Robert said:

Alan first worked with me one-on-one, then met with me and my managers, and finally with all of the employees. Our cash flow has started to improve and continues to improve daily. After six months our profits had increased over $152,000, which annualized is over $300,000 per year! We have started paying off our accounts payable to our vendors. We have reorganized our office and improved our staff with Mr. Melton’s help. We are starting to achieve many of the actions in our action plan. I have a clearer vision of where we are going and what it takes to get us to the next level. With this clearer vision comes renewed hope. Most importantly, I am working less and have started taking my wife out on dates. I would like to thank Alan for seeing hope in me and my company, and helping us through this difficult time.

Congratulations Robert for your remarkable success in using a Cash Gap Plan and other strategies to improve your company! You are one of my business heroes and an inspiration to other business owners. You can view another case study using a Team Building System in a landscaping company here.

How a Cash Gap Plan Saves You From a Shortfall (and Five Ways to Do One)

A cash gap plan is a relatively simple and very necessary method of managing the flow of money into and out of your business. It’s the only way a business owner can rest easy. You’ll know that you’ll have enough money for payroll, bills, and needed expenditures.

A cash gap is the number of days between paying for goods and services and the payment from your customers.

Cash flow is key to business survival whether your business is growing or struggling.

In any small business, resources (money, inventory, material assets) are scarce. So you want to use them to the fullest advantage. It follows that you need to ensure that your cash gap is as low as possible. You manage what you have against what you are owed. With a low cash gap, you can use the cash to repay debt and to invest in the growth of your business.

There are some well-known companies that actually have a negative cash gap! Think Amazon and Dell Computers. These businesses collect their money before they ship products. The closer you can move your business in that direction, the stronger your business will be.

To maintain a low cash gap, you must set up a plan that’s carefully monitored by your management team.

Essentials for Managing the Cash Gap

Here are four fundamentals which managers can employ to keep the deficit as low as possible.

Controlling and Reducing Inventory

One way for managers to keep the cash gap low is to take a closer look at inventory in order to minimize your investment. Let’s say that you have slow-moving items in the warehouse. This could be due to seasonal demand, improvements in materials, or other factors. You can reduce this cost burden by:

selling the items for scrap
trading them with a competitor or supplier
offering a special sale
returning them for credit

In addition, managers can review company purchasing policies. For example, they can try to get consignment arrangements in exchange for longer-term contracts.

2. Speeding Up Receivables

You know that the faster you receive remittance for products and services, the lower the cash gap.

Encourage prompt payments from customers by following up with reminder phone calls, emails, or past-due letters. Before you make a sale, you can offer discounts for early payment. You can also have payment methods like PayPal or Square to ensure a fast turnaround on money owed.

You can also assess if invoice delays are happening due to a lack of communication or processes within the billing, sale, or production staff. Addressing these issues will certainly improve your situation.

Lowering Days in Accounts Receivable

Most small businesses allow their customers to pay within 30 days. While this varies from industry to industry, you can try to lower your payment terms. For example, a manager can offer a small discount if the customer pays within five days.

In the case of international customers or historically slow-paying clients, consider getting a deposit or transfer before you provide a service or manufacture a product.

Managers should continually review accounts for slow-paying customers. If the trend is increasing for this type of customer, consider engaging a collection agency.

Negotiating Better Terms With Your Suppliers

The next way to improve your cash gap is to negotiate better payment terms with your suppliers. Perhaps you can go from paying in 30 days to 45 days. You can inform your suppliers that your customers want longer terms and that you have a cash gap that you need to improve.

Planning Ahead

When you have a small business, it will always be important to plan ahead. Even though you take all the measures possible to avoid problems, you may not lower the cash gap as much as you would like. So, it is always best to have good cash reserves available just in case you may need to use it.

Summary

A higher cash gap can handicap your business, even to the point of failure. There are several tactics that a company can do to prevent such a gap. You can collect payments from your clients sooner, renegotiate your buying contracts with suppliers, or purge stale inventory.

Conclusion

Be sure to evaluate your plan regularly. This practice will ensure that you’ve covered all the available ways to decrease the likelihood of a cash gap.

Have you tried to implement a cash gap plan? If so, how did it work for you? (Answer below in the comments section)

Better Terms With Suppliers Cash Gap Improve cash flow Inventory Control Managing Your Cash Gap Speeding up Receivables

Using a Time Management Plan in a Social Media Company

Time Management Plan in a Social Media Company

This week I’m writing about using a Time Management Plan in a Social Media Company. This is an intentional plan for investing your time wisely by blocking high-value activities into a default calendar as appointments and holding yourself accountable for executing them on time.

I have been writing about some of my hero clients and how we are achieving significant results. We have 36 Coaching Modules, which are areas within your business that fall under the broad categories of growth, profits, and freedom. So, when we improve your performance, your business will run better.

Starr’s Social Media Company

I met Starr, owner of a social media company when I was coaching another business that she was associated with. Starr is a very outgoing person who has a large network of small business owners that she interacts with. But she was not able to monetize her work with them to any significant degree. She was also having a difficult time collecting some of her fees. She was “wearing all the hats” in her business, and this was preventing growth in her business. Starr and her husband plan to retire in the Caribbean Islands in the next few years after growing their nest egg.

Strategic Plan, Cash Gap Plan, Employee Acquisition Plan, Billing Process, Pricing, Time Management

Starr filled out our Business Coaching Scorecard and we identified several areas to work on. These included the Strategic Plan, Time Management, Cash Gap Plan, Employee Acquisition Plan, her billing process, and her pricing.

Time Management Focus For Starr’s Social Media Company

With her Time Management Plan, we first identified where she was spending her time. I believe in the Pareto Principle that states that we get 80% of our results from 20% of our efforts. We conducted a time study and realized that she was spending way too much time on some tasks. These included collections, administrative tasks, and posting on social media on behalf of her clients. So, we decided that she needed to focus more on clients and sales. This way, she would need to delegate much of the posting work and automate her billing process. We also hired some team members to handle her postings.

Results For Starr’s Social Media Business

Her results with our Time Management Plan were rapid and significant. Here’s what Starr said:

“I am more focused, my office is organized, and my business has more than tripled. My business hours have decreased.”

Congratulations Starr on your remarkable results in using a Time Management Plan in a Social Media Company! You are one of my business heroes and an inspiration to other business owners. You can view another case study using a team building system here.

Billing Process Cash Gap Employee Acquisition Pricing social media time management