“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. Having proper working capital determines to a great extent how one operates their business. A combination of an owner’s cash position, lines of credit, and overall personal wealth provide the answer to what they can and/or should do and not do.
Those caterers who started their businesses undercapitalized from the get-go often never catch up. They immediately adopt a regime of paying for the costs of the materials and staff for an event from the customer’s payment for the event or the deposits from future events. This pay as you go mentality is adopted with the belief that “things will get easier” later. Sometimes things do get better, but very often the caterer simply digs a deeper hold of debt.
Those caterers who started their businesses undercapitalized from the get-go often never catch up. They immediately adopt a regime of paying for the costs of the materials and staff for an event from the customer’s payment for the event or the deposits from future events. This pay as you go mentality is adopted with the belief that “things will get easier” later. Sometimes things do get better, but very often the caterer simply digs a deeper hold 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 then creates not just a deeper hole, but a valley of debt which is almost impossible to escape from. Conclusion: a caterer needs to dramatically resist overextending themselves financially, especially if they are counting on some type of dramatic increase in business to catch up and payoff past debt.
One of the main causes for a poor financial condition is slow payment from customers. Sometimes caterers permit customers to take sixty, or more, days to pay their invoices. Very few professional services permit customers to take that much time to pay. However, once again, we find that the “keep the client happy” thinking of some caterers is to “not rock the boat” by insisting on quicker payment. This is an example of putting the customer ahead of the company which is not wise.
Catering companies who are able to have even limited cash reserves gain advantages and free themselves from the worry and pressure of “catching up” on payables. The hardest thing to teach caterers is that you don’t catch up by just booking more events. This often just leads to more debt. In fact, slowing down bookings, cutting back on staff hours, and making quick or prepayment of events a requirement will be the smartest way to get back on track.
Catering companies who are able to have even limited cash reserves gain advantages and free themselves from the worry and pressure of “catching up” on payables. The hardest thing to teach caterers is that you don’t catch up by just booking more events. This often just leads to more debt. In fact, slowing down bookings, cutting back on staff hours, and making quick or prepayment of events a requirement will be the smartest way to get back on track.
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