What should I do if my cash flow shows I will run out of cash?

Keep these three facts in mind:

• Koalakrane is a cash business
• You are supplied goods on credit
• You get cash in weekly with proportional cost of sales.

If you get behind in your payments poor cash flow management by you could be the cause of your problem.

Your lack of cash is likely to be caused by one (or a combination) of the following:

• Taking too high a wage out of the business.

  Reduce your wage or get another job to help make ends meet. You should only pay yourself the equivalent of $15-$17 an hour to service machines. Any extra profit will build up as equity in the business. If your business cannot afford what you think you deserve, you need to face up to that and get another job or income.

• Turnover too low on machines.

  How can you increase turnover? Find better sites, change products, run promotions, get more machines.

• Payouts on machines too high.

  Try to get your average payout around 30%. Don’t go any lower or you will burn your customers.

• Reducing loan principal too quickly.

  (This is the main cause of problems) You probably borrowed to purchase the franchise or extra machines. You are probably trying to pay down the loan too quickly. Negotiate with your financier to pay less on a weekly basis. If a surplus does build up in your account, you can make lump sum reductions to save interest. Financiers do not usually mind about getting less principal so long as they keep getting the interest – that is their business. When you repay it, they only have to loan it out again.

• Expenses too high.

  Look at all the ways you can reduce expenses to increase profit. If you doubled the number of machines you have, it might only increase expenses by 20% (as gas and wages won’t increase by much) but it could really step up your gross profit.

So who do you pay first?

Your first priority is to all outside suppliers for Cost of Sale or Expenses. Since your site commissions are usually paid on site, it is primarily stock and franchise fees you will need to pay. Prize stock is what keeps your cash coming in. Bills for stock are current liabilities, which means that they are due to be paid much sooner than long term liabilities so you should prioritise these. Your supplier will cut you off if you are overdue and the business will rapidly deteriorate. While we as franchisor/supplier don’t want to see you fail, we are not prepared to encourage poor money management by continuing to supply you when overdue.

The second priority is to meet your long-term loan principal and interest repayments, but be prepared to negotiate with the financier to have repayments to be mostly interest (or all interest temporarily) if you are struggling. Paying out too much principal too quickly can cripple your cash flow. Your last priority—and this goes against most business advice of paying yourself first—is to pay yourself.

You have to face the reality that if the business cannot afford to pay you what you desire, you need to improve it or get another income source for a while. A ten-machine Koalakrane franchise is not a full-time income for someone with a growing family. It starts to become full-time when you have 30 plus machines. Also keep in mind that if you borrowed heavily to buy the franchise, you can’t really double dip by paying yourself a big wage. Your priority should be to keep on top of your loans first. Paying proper attention to cash flow is the mark of a good business owner. Franchisees who are late with bills and cannot afford to pay, will quickly lose our respect as competent business people, and will possibly lose their business if it continues.