Your Cash Position - A Very Simple Explanation

Debt is a company killer. What follows is a simple answer to a complex situation. It should concern about 40% of catering businesses that are experiencing some of these concerns. As always, you may contact me to discuss the content of this post without paying any consulting fees. My desk phone is (773) 549-7210. Or, email me at mikeroman@cateringguru.com.

“What is the status of your cash reserves?” This is one of the first questions I ask when starting a consulting project with a new client. To a large degree, having the right amount of working capital determines how you operate your business. The owner’s cash position, lines of credit and overall personal wealth determine what they can and/or should do and not do.

Caterers whose businesses were undercapitalized from the get-go rarely catch up. They pay the costs of the materials and staff for an event from the customer’s payment or the deposits from future events. This pay-as-you-go mentality is adopted with the belief that “things will get easier” later. Sometimes they do get easier, but often the caterer simply digs a deeper hole of debt.

Many new caterers get themselves in an even more tenuous position because they begin to skip their various sales and payroll tax payments, which creates not just a deeper hole, but a valley of debt it is almost impossible to escape from.

One of the main causes for a poor financial condition is slow payment from customers. Sometimes caterers let customers take sixty or more days to pay their invoices. Very few professional services allow customers that much time to pay. The “keep the client happy” thinking of some caterers is to not rock the boat by insisting on quicker payment.

Caterers must resist overextending financially, especially if the way they hope to catch up is to somehow dramatically increase business. You don’t catch up by just booking more events—it may actually lead to more debt. Slowing down bookings, cutting back on staff hours and making quick or prepayment of events a requirement are the best ways to get back on track.

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