Chapter 1 -
Why all the fuss?

Every small business owner worries about cash flow, and it’s a particular concern in trucking. Given tight rates, rising fuel prices, driver turnover, bank notes and taxes, merely paying bills and making payroll can be a daily struggle.

Nothing brings the cash crunch closer to home than tax time. You struggle all year to accumulate something, only to have your silent partner Uncle Sam take a huge bite. You might have virtually no cash, yet your accountant proclaims that you’re wealthier than ever and owe a huge tax payment. Is he incompetent or just crazy? Once you understand the mysteries of cash flow management, you’ll see that he’s neither.

What’s the secret? Is it cost control? Is it finding the right financing method? The right mix of customers? Tight
company policies? Slower growth? More help from your banker? It’s all these things – and a lot more.

Increasing your cash flow is like tuning an engine. An engine’s cylinders must work together smoothly in rapid succession to generate the needed horsepower. But it entails more than just the cylinders. An engine needs many different systems and parts – crankcase, fuel tanks and lines, hydraulic pumps, turbocharger, alternator, coolant systems and electronic controls. All must work in harmony. If one fails, the engine’s performance drags – or the engine stops.

With an engine, a technician spends hours checking and adjusting parts and systems to ensure smooth operation. He consults manuals, diagnostic equipment and checklists, spec sheets, factory reps and websites, and draws on his own experience to ensure maximum performance.

Cash flow – the engine of your business – requires just as much attention. But in at least one respect, cash flow management is more difficult than engine maintenance: You must build the initial cash flow yourself.

Another difference is diagnostics. With the help of sensors and today’s electronics, a single observant driver can detect that something isn’t right. With your cash flow system, however, you depend on several people to detect warning signs. A missed diagnosis by any one of them could create a spiraling problem that shuts down your company.

Myths
You can avoid all the effort – and wind up in bankruptcy court. The understandable desire for quick fixes has led to some enticing myths about cash flow management:

I’ll just grow some cash. Growing companies consume cash; they don’t generate it. You have heard that it takes money to make money, right? Paying your employees, contractors and suppliers often requires almost all the money in the checking account.

Now your best shipper wants you to haul more loads, a task that will require 10 more tractors and trailers. That’s easy enough; your company has good credit, so you will just borrow the money. The first hit comes here, when the financing company requires a 10 percent down payment. Next, you will need to recruit more drivers and pay all the costs associated with that chore. Then you must cover 15 to 45 days’ worth of operating expenses associated with the new trucks before the first new check arrives.

Remember, you already were barely paying the bills before you added the down payments and additional operating expenses.

I have lots of asset value; I’ll just borrow. That’s what Donald Trump thought. The multi-millionaire had so much tied up in assets that he went bankrupt. He couldn’t pay his bills. True, he owned many things. But you can’t use hotel buildings to pay your power bill. That is a bit simplistic, but the point is that Trump’s net worth or asset values didn’t help him meet daily cash obligations.

The same is true for your trucking company. You can’t trade your assets to meet payroll. If you do, you lose your assets, and you won’t have a trucking company any longer. And you can’t borrow your way to cash flow prosperity. The costs of borrowing eventually will sink you.

I’ll just concentrate on cost control and improve my profits. That’s not the problem. Many business owners complain, “My net profit is high, but I have no cash.” Net income and cash flow are not the same – not even close. A high net income doesn’t mean you can pay your bills.

As in the case where you owe taxes but have no cash, we’re back to the distinction between profit on paper and profit in the bank as cash. The simple explanation is that all the income on the profit-and-loss statement isn’t actual cash receipts from that month, quarter or year.

In addition, many of your cash payments aren’t recorded on your P&L. For example, you could use your entire checking account balance to pay off a loan, and the P&L would reflect nothing. At the same time, you would have no cash to pay the taxes you owe on your net income.

Our purpose
How will this book help? We will explore these myths and how to avoid their alluring traps. We will offer ways to analyze your current situation and explore options for improving cash flow. Moreover, we will focus on concerns relevant to the owner of a small trucking company. Most books about understanding cash flow are written for accountants or controllers of large, publicly traded companies.

The cash management concepts presented here can dramatically improve your cash flow. If these terms are unclear to you, we hope to make them as familiar to you as the concerns you discuss with your mechanic daily.

For additional resources to help you better manage your cash flow, visit www.commercialcarrieruniversity.com

In Summary
Even profitable companies must consider cash flow management a daily task. No one-step solution can fix your cash flow problems; you must track several systems simultaneously.