Moving Words – Bankable

Written by Timothy Brady.

“Happiness: a good bank account, a good cook, and a good digestion.” Jean-Jacques Rousseau (18th century Francophone Genevan philosopher, writer, and composer)

Being bankable isn’t only what your credit rating is or what your company’s Dunn & Bradstreet® Report looks like. It has to do with what you know, how much revenue your company produces against your costs, what your accounts receivable look like, and also considers the quality and diversity of your customers. Being bankable is not robbing Peter to pay Paul, but managing all of your assets: cash, equipment, property, accounts receivable, customers, employees and contractors, with a plan. This plan must include being prepared for the lean times, equipment breakdowns and replacement, and covering the daily cost of operations while waiting for customers to pay. This strategy must not let growth out-pace capacity, and above all, there needs to be a vision of building the company’s net worth.

• So, know where your profit begins. The biggest mistake business owners make is allowing others to determine their rates. Allowing your competition or your customers to tell you what you should be charging is the first step to business failure. Has a truck repair shop ever asked you what you’d like to pay them to fix your truck? Don’t do the one thing that causes more failures in the moving industry than any other—don’t let someone else set your rates. And the only way to set profitable rates is knowing your break-even points.
• Be willing to listen. Have an ear to the road. Always have your antennae out for new and innovative cost-savings ideas. Listen to the input of your van operators, dispatchers, safety and sales people. If you’re wearing all of these hats, search for the ‘been there-done that’ crowd, for information that is applicable to your operation. Look for information outside the moving industry and stay on top of the trends and news from your shipper’s perspective—walk in your shipper’s shoes.
• Know your customers. Know the risk they represent to your revenue-producing capacity. What’s their credit rating? How’s their paying history? What are their projections for growth? What are their weaknesses? Are there problems on the horizon for this company or their industry? Labor troubles, foreign competition, recalls, product or patent lawsuits? In other words, anything that could interrupt your customer’s ability to provide you with loads or pay their invoices on a timely basis.
• Give credit only where credit is due. Sales people tend to be quick on the issuing credit trigger. This is understandable because their objective is to earn a commission. 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 put you in the hammer lane to 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 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, and the more accounts which fit this description, the bigger the crisis. The bottom line is, behave just like a banker; if you’re going to issue credit, make sure they have the ability to pay and pay in a timely manner.
• Do you own a company or does the company own you? Be leery of actions where you, your management or employees could unknowingly (or knowingly) steal needed cash from your operation. It can be anything from failing to include all your costs in the operation’s break-even point and hence creating questionable rates. Or, you’re allowing others to determine your hauling rates. Either way, cash is being left at the shippers, causing the business to be short of that cash and diminishing the operation’s performance.
• Think like a banker. If you are going to establish a ‘creditable’ relationship with a banker, you must approach your business from a banker’s point of view. Banks don’t lend money without doing their homework. They’ll have articles from moving 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.

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 sufficient cash in the company’s coffers will make the worst of times your best of times. Becoming bankable will help you achieve self-capitalization, thus creating your success.

“A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.” – Robert Frost (American poet)