The importance of developing good supplier relationships is something I deeply understand as both a Part time CFO who performs CFO Services and an Entrepreneurial CFO.
I’m not saying you should be disloyal to your suppliers. In fact a very profitable strategy can be developing loyalty to your suppliers. If the right supplier recognizes your loyalty it will result in better pricing, better terms, and in the long run, higher profits.
Rather, I’m saying you should take proactive measures to protect your business for the long term. It’s risky to have only one supplier for a particular business segment. If you do decide to use only one supplier, you may run into one or more of these problems:

• Drastic changes in price and terms. You may have general market forces working in your favor, but if you are not prepared to go anywhere else, you are at the mercy of the whims of one source, and you are stuck with their decision, which directly affects your company, no matter what.
• Changes in the quality of the product. If you have only one supply source and they don’t keep up with technology or they decide to reduce quality control to save money, your business can get hurt by a quality reduction you had no control over, and with no alternate supplier, the product of sub-par quality is now your only option.
• Suppliers taking advantage of you. Not all suppliers recognize loyalty in a positive way. If a supplier realizes they are your only source of product, they may feel they can give you any quality for any price that benefits them, because you rely so completely on them you have no choice if you want your product. Be wary of any supplier that tries to butter you up or refer to you as their “partner” because of how much you work together. If your “partner” supplier is giving you sub-par quality products, or forcing unreasonable terms or prices on you, you can be sure they don’t really see you as a “partner”, but as an easy mark.
• Not knowing how competitive the sole supplier is with respect to terms and pricing. There’s no way to know if you’re actually getting a good deal if you have no other supplier to compare yours to.   And in order to really compare, you’d have to actually use another supplier, not just look around at other suppliers’ terms and prices.       General market pricing cannot tell you all you need to know about how the supplier does business, or what deals are being made in the backroom of other suppliers (which would greatly affect how they really stack up against the supplier you use).
• You have no other credible source of supply if at any point your business takes a downturn and your one supplier decides to squeeze you with unreasonable terms, such as cash before delivery or requiring letters of credit. If you don’t have even one alternate supplier with whom you have established credit terms, your sole supplier can take advantage of you as soon as you get behind on your payables and start asking for ludicrous payment terms (which you’ll have no choice but to try and cope with because you’ve cut yourself off from all other options).

I know from personal experience in owning retail, manufacturing, and service companies over the last 28 years (over which time I’ve seen all of the above problems occur in situations without alternate suppliers), that establishing credit and business relationships with more than one supplier in all of your business segments is a very beneficial and worthwhile pursuit.

Have a sinking feeling in your gut that your numbers just aren’t adding up? Starting to feel the weight of the world crushing in from all sides as creditors call with increasingly urgent demands for money you’re pretty sure you just don’t have? Wishing you had thought ahead more considering now you seem to be in debt to a lot of people quite out of nowhere? You may have a Cash Flow Problem. As a CFO Consultant, I know a few things about getting through this stressful potential nightmare, but first I’d like to rewind a bit, so that in the future, perhaps you can avoid said nightmare altogether. Having a 13 week or 12 month Rolling Cash Flow Forecast is the best way to avoid being blindsided by a Cash Flow Problem. The 12 month Rolling Cash Flow Forecast is the one that comes most highly recommended by me, because it offers a longer range view and more “what if” analysis. This gives the business owner both the ability to see cash flow problems coming and the time needed to avert those problems!

Now that I’ve given you a little good advice too late, let’s get back to your current problem. You may even be thinking “I had a 12 month Rolling Cash Flow Forecast, yet here I am, still in trouble.” Sometimes even with a cash flow forecast in place, unforeseen troubles still arise. Sometimes the problem is predicted, but there was still nothing that could be done to stop it from occurring. Sometimes the problem is foreseen but the business owner decides it’s a calculated risk to let it happen because of what else they gain from it, and it doesn’t work out.   Whatever happened, the end result is that you now have a Cash Flow Problem, and you need to be quick about resolving it.

In order to get in control of a Cash Flow Problem, being in control of each vendor situation is imperative. That means being as proactive as possible.  Communicate with your creditors. A mistake most business owners make is remaining silent and trying to hide from their creditors. Of course hiding never works, creditors will simply continue to barrage you until you pay them. At this point, while you are officially in the middle of a Cash Flow Problem, creating a 13 week Rolling Cash Flow Forecast would be more advantageous to you than a 12 month one. It allows you to look ahead for the short term, and determine how much free cash flow is available to pay bills, therefore helping you out of your problem.   After determining how much money is available for paying bills, decide which things are the most important to pay off immediately (on the top of that list should be payroll, payroll taxes, sales taxes and any other fiduciary taxes). Then, payment plans need to be created for creditors so that everyone at least gets something when they can’t get everything. The big thing to remember in all of this is DO NOT BE SILENT. Just like you need to communicate with your creditors you need to communicate with your vendors. Once you’ve worked out how much money you have and the order in which you are going to pay things off, you need to be proactive and reach out to your vendors. The sooner you do this, the better, because early action is how you remain in control. You can dictate the terms to your vendors. You can let them know how much and at what time intervals you are going to pay them.

Typically, being so forthcoming about your situation and working it out in such an organized, efficient manner will earn you respect and people will be willing to go along with your plans. Of course, not everyone is going to accept your terms. Sometimes people will meet you half way, sometimes people will completely disregard your terms and continue to demand full payment immediately. You should expect these things to happen. It’s the reason you need to reserve some of your free cash flow for creditors who are adverse to your payment plans. You can’t just allocate your entire free cash flow to your payments up front, because cash flow problems need to be handled on a case to case basis.

If you take anything away from all this, it should be that if you aren’t proactive, you relinquish control of the situation to everyone coming after you for money, and they obviously don’t have you or your company’s best interests at heart. A Part Time CFO with experience in handling these situations could also be greatly beneficial in helping you through this stressful process. Working out a Cash Flow Problem is never easy, but it doesn’t have to cause the business to death spiral, and I’ve sadly seen just that occur all because the business owner was not proactive. Honestly, even though things probably won’t work out perfectly, the most important thing you can do to help yourself when faced with a cash flow problem is being proactive. Be up front about your situation, find out what you do have, come up with a plan, reach out to the people you owe and try to work it out with them. Good luck!

Business owners who are interested not only in a business that is more valuable to the customer but also in seeing an increase in profits may want to reconsider their role in their own company. If you find that your company is not doing as well as you feel it should be, the answer may be adopting a philosophy that I, as a CFO Consultant, highly advocate and work to help all my clients achieve. That philosophy is that a good business owner should never work in their business, but instead always be working on their business.
It can be very challenging to turn your whole business strategy around. If you’re a business owner who is too involved working in their business, it can be a very hard habit to break. You might even feel it’s not possible and wouldn’t work. Here are some steps and strategies to help get you in the right mindset to stop working in your company and start working on it:

• The right people need to be given operational and administrative responsibilities, and if you aren’t absolutely certain you have the right people, you need to work to find them. As the business owner, you cannot have or even get involved in any operational or administrative duties, so it’s imperative you find and hire people you trust to do these jobs.
• As the business owner, you are your company’s ambassador; you speak for your company. You are the face of your company, you control what the world sees when they look at your business.
• As the business owner, you are the one responsible for bringing in business, and should be consistently trying to pull in business from their existing customer base, and reaching out to bring in new business.
• Remain in constant communication with your existing customer base. Maintaining those relationships is of utmost importance and is the business owner’s responsibility.

I have had clients who have snickered at this philosophy, mostly due to its apparent ineffectualness in the 2008 recession. During that time, many business owners adhering to this philosophy were forced to lay off the key people in operational and administrative positions, so of course without the people who make working on a business possible, these business owners had to return to working in their business.

What I say to those who snicker and look at the eventual return to working in their company as inevitability, is that those business owners went about dealing with the recession all wrong. Had I been there to consult those business owners, I would never have advised that they lay off their key people, or abandon working on their company not in it altogether. In a recession, a business owner should never lay off key people or top performers. In difficult times, those people are needed more than ever, because the business owner needs to throw themselves even harder into creating an appealing face for the company and continuing to bring in business during a time when people are wary of spending money on anything. For the business owner to take themselves out of that crucial position and throw themselves into operational and administrative duties because they fired all their top employees at all is a huge mistake. The people who should be laid off are your secondary performers, people who do okay, bare minimum, or who do poorly in their respective jobs.

Hopefully, I have convinced some business owners to embrace the concept of working on their business, not in it. A Part Time CFO worth their salt should at least have a working knowledge of this particular philosophy and how to implement it as part of their CFO services.

One of the biggest challenges business owners face is keeping track of where their cash is at. “I’m working and nothing is showing up in my bank account! Where is my money going?” is a common lament I hear as a CFO consultant.

It’s no big surprise that cash is vital to a business. Plainly put, without cash, there is no business, because what’s a business that can’t manage itself affectively? When problems arise, a cash-less business is too crippled to operate properly. If business owners don’t know where their money is going, it can get tied up in unproductive places. If the cash stays in these dormant areas, the business will be crippled. Cash is an asset, your company’s greatest asset, therefore if you want to produce the maximum earnings and return on assets, you need to learn to utilize your cash effectively. To do this, a business owner needs to know where their cash is.

Take a look at this list of places where cash is known to hide. You’ll probably find your missing cash is in one or more of these places!

• If you don’t adhere to a specific credit policy, your cash will come in slowly and get hidden in Accounts Receivable.
• Some business owners like to pay in advance for things to get it out of the way and the stress off their mind. Unfortunately, this practice can lead to cash getting hidden in Prepaid Expenses.
• You need to sell slow moving inventory so you can reinvest the money in inventory that really moves. Otherwise, you’ll fall victim to the same trap that gets so many retailers, distributors, and manufacturers when your money becomes unproductive and invisible in Inventory.
• If a business owner decides to pay cash for a fixed asset when the return on their inventory and services rendered is much more than the cost of financing, or if they simply don’t realize the impact, their cash can get tied up in equipment, machinery or vehicles, leading it to hide under Fixed Assets.
• Similarly to business owners who like to pay ahead and get their money lost in prepaid expenses, business owners who pay their bills too fast will have their cash consumed unproductively and prematurely in Accounts Payable.
• The time period between the out lay of cash to provide a service or make a product and receiving the cash for that service or product is called The Cash Conversion Cycle. Receiving payment for the final product before paying for the expenses and/or inventory of production, and/or the expenses of selling the inventory is The Cash Conversion Cycle’s objective. Understanding your Cash Conversion Cycle allows you to productively work with suppliers and create strategies to meet this objective. AS a business owner, you want to understand The Cash Conversion Cycle and get it working smoothly, because you can find yourself waiting on money you feel should already be in your company and wondering where it is if The Cash Conversion Cycle is too slow.
• This may sound almost counter-intuitive, but if at least 25 to 35% of your customers aren’t complaining about your prices, then you need to jack up your prices, because right now they’re too low! Obviously that’s a problem, but it can also be a problem if your prices are too high—that will impact margins.       You should always negotiate with your suppliers or streamline process to avoid Lower Profit Margins.
• As a business owner, looking to your own salary to answer the “where is all the money going?” question may just be the answer. Think what an outside board of directors would pay you knowing all the factors and contingencies of your business. Base your salary off of that number and avoid abusing your business by taking too big a salary for yourself. Also check for a high overhead base. Nothing kills cash flow like High Overhead.
• This last one is certainly not as likely as your money hiding in the other places mentioned on this list, and should absolutely not be jumped to as a first conclusion as soon as a business owner finds they’re not sure where their money is going, but it’s still worth being aware of. No one likes to think it can happen to them, but unfortunately, if you find you’re truly missing money, and it isn’t just hiding in any of the aforementioned places, you may have to look at those who work for you. The sad truth is that 80% of all theft is Employee Theft.