Customer story written for Kabbage, by Mark Luthringer
Many small business owners are used to playing the waiting game when it comes to getting paid – it’s a fact of business life. But how do you manage cash flow and pay the bills when your vendors are enormous companies that do everything slowly (including buy your products and pay the bills)? Rich Goodell, owner of defense and aerospace supplier Beyond Electronics, has “800-pound gorilla” customers who are vital to the success of his business – but who may only place orders once or twice a year.
Big clients, big gaps in revenue
“A lot of our clients are dependent on government appropriations, which can be subject to politics and all kinds of delays,” says Rich. “We have others in the oil business, where everything rises and falls with the price of oil.” So volatility is built in with these clients. “We have huge swings in income,” says Rich. “Over the previous three years, we had only two new contracts, but this year we’ll have 10.” Furthermore, Rich’s products are complex, requiring lead time for parts and supplies and for manufacturing. “Eight weeks to gather inventory, plus another 12 to manufacture, is a long time to cover costs and wait to issue an invoice,” he says. And while 800-pound gorillas like Caterpillar and Lockheed Martin may move slowly, their work is worth so much that Rich has to be ready to respond with as few delays as possible.
Cash flow strategies
A line of credit is an obvious solution for Rich. Cash that he can access when needed helps pay monthly expenses, and also helps make big inventory and parts purchases. “We might have to order a few years’ worth of parts in some cases,” says Rich. A credit line flattens out the rollercoaster, and it gives him peace of mind to know he can ramp up if a new contract comes in. Rich adds another cash flow tip: “Make sure you are set up to receive electronic payments in the quickest way possible with your clients,” he says. “Lockheed invoices don’t happen that often for us, but when they do, we get paid electronically net 15 days, which is great.”
While many businesses are opening the cash register every day, the particulars of Rich’s business require him to take a longer view. “I try to forecast everything three years out,” says Rich. “Often I know when there will be ups and downs, and with this knowledge I can be strategic,” he says. Sometimes this just means cutting expenses, which might seem unappealing, but for Rich it has had a silver lining: “During the slow periods you cut expenses, and in the process you learn how to run leaner,” he says. One expense that allows some discretion is staffing. “At one time we had 10 employees but we found that things would slow down and there wouldn’t be enough work for them,” says Rich. “Independent contractors have helped a lot. We bring them on for a few months at a time.”
Sometimes cutting expenses means simply working with suppliers. “We have a few who are willing to stock our parts and only charge us when they pull them. Vendors will often do this kind of thing to get the business, if you have a good relationship,” says Rich. Those relationships have also helped Rich reduce his overall staffing needs. “We found that a lot of the stuff we used to do internally can be handled by our suppliers, and they’re often happy to do it. We’ve cut costs by having our suppliers take care of some of the work.” Rich states the obvious: “Relationships are everything in business.”