What are continuous signals?
Small checks that give you peace of mind that your business is headed in the right direction. Or, the alternative, signals telling you that your business is headed for a profitability, productivity, or cash flow problem… so you can take the steps to resolve them before they become major crises and headaches.
It’s like brushing your teeth, a habit that is critical to your biological health.
Checking these signals are habits that are critical to your company’s financial health.
Both of these habits take less than five minutes a day…or even five minutes a week.
Here’s the first signal – do this weekly:
Track your accounts receivable to accounts payable balance every Friday.
Remember to add cash to your accounts receivable if more than 50% of your business is COD. Don’t include retainage. Include accounts payable plus credit cards if your accounting system separates the two.
Know this balance every Friday. If it’s close to or less than 1 you are in trouble – you probably know this already since you probably are stressed to make sure there is enough cash coming in to pay payroll and your bills.
If it is increasing – is it increasing because you are not being paid or because revenues are increasing?
The corollary to this activity: Look at your aged receivables and aged payables reports every Friday.
See who owes your company money and who your company owes money to. If someone needs to collect, get on it! You personally don’t have to collect. Just find someone who loves it (and yes, there are people who love collections!)
Final thought for an accurate AR/AP signal:
Institute a “clean Friday.”
This means that all service and jobs are billed (all COD invoices are in the computer), all service invoices are in the computer, all supplier invoices are in your accounts payable system. You’ll have up to date accounts receivable, cash, and accounts payable. The ratio will be as accurate as possible.
Next post – another continuous signal.
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Ruth King is well known as “The Profitability Master.” She is passionate about helping small business owners become profitable and stay profitable. For over 40 years she has coached, trained, and helped contractors and others achieve the business growth and goals they wanted to achieve.
Contact Ruth by emailing ruthking@hvacchannel.tv.
