Focus on Cash Flow and a Cash Reserve


cashflowCash is to your business what blood is to your body; if it doesn’t flow you will die. The number one reason businesses fail is lack of money. Without a healthy cash flow and reserve, your dive center will go out of business regardless of the number of mask and fin sets you sell or the amount of trip deposits customers owe. The cash flow and reserve enables to you take advantage of early payment discounts, closeout sales, new opportunities, and unexpected emergencies.

A responsible business owner ensures that the amount of cash coming in exceeds what is going out and a reserve is created to hold the over flow. You can create a positive cash flow and build a cash reserve by consistently monitoring your cash flow, focusing on services that you can collect cash for quickly, improving your account payable and accounts receivable, and managing your inventory.

As part of your analytics, develop a weekly and monthly cash flow forecast. Use the forecast to spot trends and make corrections in what you purchase and sell. Whether it is slow collections for dive trip deposits, too many special orders with no money paid up-front, or slow sales, you can use this information to identify points where you pay money out but don’t collect it fast enough (The fifth and final article in this series will focus on analytics in more detail).

Concentrate on services that you can collect cash for quickly. Focus on fast turnaround for regulator and tank services along with pre-authorized payments that can be tendered once the work is complete. Sell materials for courses separately from the cost of the class and they become “non-refundable” deposits. This works great if your training agency features eLearning; also eLearning access codes provide better margins and aren’t as expensive as traditional paper materials to inventory.

Manage your accounts payable and accounts receivable. Trip deposits make up the majority of a dive centers’ accounts receivables. Have a system in place for reminding customers of their obligations to you but don’t be over-bearing. Also, offer a small discount to customers if they pay within a certain period of time. In regards to accounts payable, ask your equipment vendors about early payment terms and discounts. However, keep in mind that using these terms and discounts are smart only if you can sell the products in that time, pay the invoice, and then re-order. If they don’t offer early payment discounts and since you benefit from keeping cash as long as possible, pay your accounts payable balances on the day they are due. Negotiate with equipment vendors for extended payment periods.

Most dive centers lose most of their money by failing to manage inventory. Inventory that you can’t transform into cash is useless. How many lime-green masks are sitting on your display shelf? Monitor your daily sales activity as part of the weekly and monthly cash flow forecast we noted above. Your goal should be to commit just enough cash to inventory to meet demand. Regarding those lime-green masks or other old inventory: any money you make from stale merchandise may put you ahead. One way to unload old merchandise is to simply lower the price: this is often all that is needed. Also, include the unwanted items as part of a larger package to increase the package’s perceived value; this may be preferable to simply offering the package at a discounted price.

Regardless of which steps you take, ensuring that the amount of cash coming in exceeds what is going out and that a reserve is created, are the keys to keeping your dive center open and financially healthy. Create a positive cash flow and build a cash reserve by consistently monitoring your cash flow, focusing on services that you can collect cash for quickly, improving your account payable and accounts receivable, and managing your inventory.

 

This is Part 4 of a five-part series by Patrick Abercrombie on the challenges facing dive retailers in the coming year. See a complete list of the articles in this series or read the series introduction.

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