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

 

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.