4 Important Cash Accounts for T&L Businesses

Content Provided by: Dan Rutherford, Virtual CFO Summit Virtual CFO Services by Anders

A solid amount of cash on hand will help protect your business against unexpected disruptions, but don’t stop there. You need different cash accounts for different for different purposes, and we recommend keeping them in separate accounts so that you always know what you have:

  • Operating cash (for paying bills)
  • Cash reserves (cash-on-hand)
  • Tax reserves (for Uncle Sam)
  • Line of credit (for emergencies)

Here’s why you need each:

Operating Cash: Paying Bills on Time

For your Operating Cash account, you move money from where you receive revenue from Accounts Payable into your account for Operating Cash, no math required.

Your business will suffer if you’re not taking care of operating costs. But you need to pay for those costs from a separate account so you can understand them and any major swings.

Cash Reserves: How Much Cash on Hand Do You Need?

You can be generating significant profits and still go out of business if you’re burning through your cash blindly.

Rather than follow the common rule-of-thumb of keeping two months’ worth of expenses (since that number can change), keep 10% to 30% of your net income on hand.

You’re good to keep just 10% if your business has…

  • High recurring revenue
  • A strong pipeline
  • Zero or low Accounts Receivable (AR) days
  • A strong mixture of clients
  • No single client that accounts for more than 10% of your revenue

However, if the opposite is true (e.g., low recurring revenue, a single client accounting for much or your revenue, and high AR days), you need to try to reach the higher end. You won’t create your reserve overnight, but you want to start building up as soon as possible.

Tax Reserves: How Much Do I Need to Put Away for Uncle Sam?

Nobody enjoys paying taxes, but the last thing you want is to come up short during tax season.

A separate cash account for taxes can also help you avoid shocks to your business by writing huge checks (and added penalties).

Your tax reserve should be 40% of your company’s net income before taxes. You may pay less, but better safe than sorry.

Your estimated taxes are based on your previous years’ income statements, divided by 4. Even if your business is brand new with no previous income history, you still need to pay those estimated quarterly taxes to avoid potential penalties.

Line of Credit: Cash When You Need It Most

A line of credit can feel like a loan, and this can make some businesses nervous to open one. But really, you get the line of credit and hope you never need it. It’s just there for major emergencies – and major opportunities that come your way.

Your business should have lines of credit (LOCs) that cover 80% of your receivable balance. That 80% excludes your bad receivables.

To get a line of credit, you need clean accounts receivables. If your books are messy, you may need to hire a CPA to help you get your books in order. Banks will look to see:

  1. That you’re the amount you want in your LOC makes sense with how much income your business is earning
  1. That you’ll be able to pay off your LOC if you use it

For a sustainable business, keep good books.

With higher operating costs and slimmer margins, surviving in the transportation industry as a small business owner or owner-operator has never been more challenging. However, with a better approach to cash management, Brokers, Freight Forwarders and 3PLs give themselves a better shot at surviving the bumps in the road.

Why Key Performance Indicators Matter

Why Key Performance Indicators Matter

By Dan Rutherford, Virtual CFO and Transportation + Logistics Industry Expert for Summit Virtual CFO by Anders

Key performance indicators (KPIs) are vital for transportation & logistics companies.

KPIs such as revenue per truck, utilization, and revenue per mile provide valuable insights into the company’s performance. Accurate accounting is essential to ensure the reliability of these KPIs, which are critical when creating a financial forecast.

Make sure any CFO you’re working with has the necessary tools and expertise for accurate forecasting. Effective forecasting involves considering not just revenue but also cash flow and making informed decisions about equipment purchases, employment, and other factors that can impact your company’s financial position.

In addition to financial metrics, non-financial metrics play a significant role in assessing performance. Capacity planning, in particular, is critical for aligning a company’s goals with its operational capabilities. By focusing on improving culture, people, technology, and processes, companies can enhance utilization and effectiveness.

Measuring productivity and activity is equally important. 

I believe that productivity and activity go hand in hand, and, by increasing activity levels, productivity naturally improves. Metrics like gross profit per person are widely used on the logistics side of the industry to gauge productivity.

Make sure that you’re meeting regularly with your CFO. You should have an established cadence–meeting weekly to review cash flow. These proactive meetings not only address the current state of your cash flow but also anticipate any potential issues that may arise in the next 12 weeks. This approach ensures that your company is prepared for any challenges and can have peace of mind. If your CFO is reactive (reacting to a situation after it’s happened) rather than proactive (planning for a situation before it happens), you might want to consider a CFO with a more advisory approach.

Having someone on your team that understands the importance of having cash and tax reserves to prepare for unexpected events, such as economic changes or a pandemic, can be the difference in your business thriving or tanking. By discussing these scenarios ahead of time, you can create a plan and feel more secure about your financial future.

Once you understand the importance of forecasting, know your KPIs and non-financial metrics, you can leverage these factors to take your transportation and logistics company to the next level and unlock its full potential. The key to this, however, is having a CFO who understands the industry.


Navigating Tight Finances in 2024: Make-or-break strategies for small businesses.

By Dan Rutherford, Virtual CFO

Make-or-break strategies for small businesses.

It’s clear that 2024 is going to continue to be a challenging year for the trucking industry. With stimulus money running out and interest rates up, it’s no surprise that deactivations are also steadily on the rise.

In this environment, where it seems like so much is out of an owner’s control, the best approach is: Control what you can.

With all the moving parts for transportation and logistics companies, no one can blame an owner who is just trying to get through the week, cash-wise. Fuel costs, unexpected breakdowns, payroll – it’s a lot.

But if you’re going week-to-week, how can you look ahead to bigger decisions like hiring or major purchases and how to finance them? In leaner times, it becomes way too risky to just go with your gut.

Cash flow management might sound like a lot of number crunching, but it’s really just a way to take the information you already have about your company’s revenue and expenses and put it to work for you. By knowing your major monthly, quarterly and annual expenses and when you can expect client invoices to be paid, you take your gut out of the equation.

Cash Reserves

Part of cash flow management means building up enough cash reserves to weather any storms. We recommend anywhere from 10-30% of annualized gross revenue, depending on your size and level of risk.

That may sound like a huge number – and you don’t have to get there overnight – but there’s a reason why people love to say, “Cash is king.” If you’ve got a strong cash reserve and know what the next quarter and year will look like for your business, you’re going to be the one to make it through tough economic times. Having cash is a bit like driving a monster truck versus a scooter: the scooter might feel fun and carefree, until you get stuck behind a pile of boulders.

When you stay on top of your cash flow with weekly check-ins, you won’t be worried about coming up short for a payroll, and you won’t have to worry about getting hit by an unexpected expense. But it goes beyond that: You’ll be ready to grab those once-in-a-lifetime opportunities because you’ll already have the data to back up your decision.

As industry conditions tighten, the businesses that will survive and thrive will be the ones using data to understand and manage their cash flow.,

A solid financial model of your operational decisions is the secret to successful scaling. Our experienced CFOs create a dynamic forecast to help you analyze how those decisions impact your cash flow and financial statements. Are you ready to consult with our Virtual CFOs? Contact Dan Rutherford, Virtual CFO and Transportation + Logistics Industry Expert, for a free consultation


Get Where You Want to Go: Dynamic Forecasting for Trucking Companies

By Dan Rutherford, Virtual CFO

Would you send your drivers out on a cross country trip with a paper map? By now, GPS has become such a regular part of the industry that it’s hard to remember what things were like before.

Why is GPS such a powerful tool? Because it’s dynamic. It allows you and your drivers to know up-to-the-minute ETAs, to plan for detours and roadblocks, and to navigate around traffic. Take a wrong turn? You get back on track without wasting time.

GPS is a no-brainer. But when it comes to finances, too many companies are still using the equivalent of a paper map: the budget.

Every year, you sit down with your bookkeeper or maybe your tax planner, look over your expenses, and decide if and how to change things for next year. Then you hope for the best.

But what do you do about a spike in fuel prices? What if there’s an amazing opportunity to purchase a new vehicle – can you afford a loan? Do you have enough cash to buy it, flat out? What if a major client walks away, or a few drivers quit?

Unexpected things happen in business all the time. We know that for a fact. The question is, when the unexpected happens, are you using a paper map to try to get back on the road, or do you have a GPS?

A dynamic forecast is your GPS. We start by building it with the most important key performance indicators (KPIs) for your business, for example revenue per truck, utilization, and revenue per mile. We look at revenue, profitability and cash flow, both on a short- and long-term basis, and if things aren’t going in the right direction, we can test different scenarios to figure out the best way to course correct.

Dynamic forecasting isn’t just about damage control – although it helps to sleep at night knowing you’ve got that covered. It’s also about knowing if it’s time to jump on an opportunity or whether it makes more sense to wait this one out. Is it time to buy a new vehicle?

Before you commit all that cash, you want to know if you’ll have enough to make the next few payrolls – even if gas prices happen to surge this quarter. You’ll also want to know if you’re using your current fleet to its fullest.

There’s no crystal ball in business. But you can choose to run your business with a paper map or with a GPS. I’m pretty sure I can guess which one is going to get you further, faster – and with fewer surprises along the way.



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