Meanwhile, while we’re working through this recovery, this is a good time to configure a sound survival strategy for the next time the economy turns south. Here are some things that you can do:
- Create a capital reserve fund. How you set this up will depend to some extent on the structure of your company. Your accountant can advise you how to go, but your objective will be stashing cash from your current operations so you will have it for a rainy day. Six months’ operating expenses is a common goal, but how big your safety net is, I guess, depends on the size of the jump. The money should go into a CD, a T-bill, a money market account or something else that is liquid. Don’t worry about appreciation or interest income from this type of investment; just keep up with inflation. Forget about the NASDAQ or the NYSE; this is not a speculative investment.
- Arrange for a line of credit at a time when cash is flowing and you don’t really need to borrow. Developing a relationship with your banker when things are good is much easier and cheaper than climbing the same hill when business stinks. You are creating a history of your banking, a source of supply that you’ll need later.
- Establishing credit this way with a bank will help keep your business in good financial shape. Financial reporting is how the bank tells how you’re doing. Gee, what an idea; you know, I ought to have that information all the time. Sometimes I have thought I was doing great, but never seemed to have enough cash. Check your receivables — it’s in the report. Before we promise a job for a certain start date, we always check our resources. This reserve account is a resource, and checking it is just as important. Your business is the engine, and operating capital is the gas and oil. A periodic look at your credit preparedness and reserve accounts relative to your size and potential needs is equally as important.
Believe it or not, it’s just as easy to go broke in good times as in bad times. Many companies have “hit the wall” right after having a great year on paper, paying out a lot of profits and then waking up to find the gate open and the horse gone.
The best management practices are those that control costs when you have good volume. They increase profits and provide the wherewithal for reserves. Stay on top of what’s going on in the industry, whether you remodel part of the time or all of the time.
The NAHB Remodelors™ Council is a great source of information on good management practices, and a place you can find peer comments and assistance, contractor to contractor. This is the one place where you can find all of the tools you need to help keep the phones and the hammers making the noises they’re supposed to.
For more information, e-mail Therese Crahan or call her at 800-368-5242 x8211.
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