No detail too small. Whether it is servicing a customer in the showroom or balancing the books, running a flooring store demands that you have extensive knowledge of every aspect of your operation. Here, retailers get a preview of new products during an open house at Karndean International's new facility in Pittsburgh.


Does your job description sound something like this? “Chief Executive Officer, Chief Operations Officer, Chief Marketing Officer, Chief Finance Officer, Chief Human Resources Officer” and (unofficially at least) “chief cook and bottle-washer?” In recent columns, I’ve focused on all of these roles but today I want you to think specifically about your responsibilities as Chief Finance Officer.



Your CFO duties are critical, because you manage cash-and cash is the lifeblood of any business. As CFO, you are charged with keeping track of (and maximizing) the flow of cash in; whether it is from customer sales, lenders, the sale of assets or from investors. It is also your responsibility to monitor cash out - that includes paying operating expenses, buying assets, repaying debts and keeping track of owner-withdrawals. You need to know when and how much cash will flow into the company cash register as well as when and how much is supposed to flow out.

Poor controls and internal mismanagement can kill a business. There are also two external forces that drive you out of business:  a fast increase in sales or a large decrease in sales. This year’s economic slump has depressed flooring sales across the country; many retailers are struggling. Equally devastating, however, can be a rapid rise in sales, as often happens after a natural disaster has destroyed hundreds of homes and businesses. Your first thought may be to welcome a big sales boost. But both these external forces can be deadly. The cause of death: cash-starvation.

Danger in Sales Decline: When sales drop, owners usually lower prices. That depletes the Gross Profits that fund fixed expenses. If there is no reserve capital (in savings or available credit) to cover expenses, the business drifts into insolvency. I encourage you to make sure you have backup capital now. You will need it, for economic recessions are inevitable. When one hits your area, you’ll get no sympathy by grumbling, “I didn’t foresee this happening.” Recessions come. Be prepared for your next sales decline.

Danger in Rapid Sales Growth:  It takes one set of skills to achieve growth and build a business, but a different set to sustain growth. I congratulate the storeowners who built their business from scratch, but I caution you: don’t become complacent. You need different skills to keep a business liquid during ups and downs. 

Smart storeowners can handle annual sales growth up to 5-8%.  (This is true for businesses of every size, not just companies of your size.) But growth beyond 8-10% a year will undermine any business not properly capitalized. This is because the extra demand requires that you purchase more inventory, hire staff and buy equipment and supplies. These eat cash.  Customer payments do come, but too late to cover all your trade Payables. And money coming in from customers won’t cover the full upfront cost of new hires and equipment. Compounding this, owners are pressed into serving their customers, so they fail to monitor expenses that invariably rise when not suppressed. This increase of fixed expenses and debt causes an acute cash crunch.

Inexperienced owners, in their excitement to grow quickly, may forget the basics of business: profit and cash flow. In my consulting with dealers, I harp on the principle: manage your growth through deft planning and mature execution. Abrupt movement-either up or down-can drain cash flow.  When you need an infusion of cash there are really just four sources: customer transactions, the selling of assets, lenders, and investors (equity owners). From my experience, I recommend the following steps to increase your cash flow. 

Increase cash sales and reduce in-house credit sales. At the time of sale, obtain a deposit (at least 50%) high enough to cover your costs until you collect the remainder. Discourage in-house credit sales. Remember, you are not a bank.

Sell more through private label credit cards.Offer the card to every customer whether they buy or not. Ultimately, this can increase your sales, margins, average ticket and closing rate.

Collect debts faster.Pay attention to your policies. Do you invoice customers on delivery? Twice a month? At month’s end?  Research reveals that for every 30 days you let bills remain unpaid, you will never collect about 3.5%. Smart businesses collect their cash early.  

Reduce inventory. The cost of carrying inventory equals about 2-3% of its value per month. At your present level of inventory, how much are you paying this year to stick it? I encourage you to streamline your inventory.  Discount and sell obsolete items. When steady customers, like property managers, want you to have inventory available for immediate delivery, charge them for your carrying costs.

Take vendor discounts. You cannot afford to pass up your vendors’ purchase-term discounts. It is your easiest source of profit. If you can’t pay early enough to earn a discount, borrow. The interest you pay is usually less than the discount.  So, you earn a profit on the debt. 

Establish a credit line.Seasonal downturns and economic cycles are inevitable. Establish credit before you need it. Keep a credit line open.  Joseph Ingrassia, a managing member of Capstone Business Credit, suggests building relationships with the local banks that service your community.  “I’ve seen small businesses go out of business because they teamed up with the wrong lending institution,” he says. Remember, the best time to acquire a credit line is when you don’t need it. You can obtain credit lines and cash from banks and other sources as well. Peer-to-peer borrowing, for example, can be obtained via the Internet from private lenders. You post your request, including the amount, term of the loan and the maximum interest rate. Private lenders offer money on their terms. You accept their terms, or negotiate through an intermediary.

“Advance pay” is another source of credit. If you accept credit card purchases, you can borrow cash. The loan is secured by future credit card sales. This is not a collateral loan, but lenders have stringent requirements for these types of loans. The cost is high, but it may be worth it if you have a critical, short-term need. (Do not use this source if your business model is broken, and you cannot foresee a way to pay off the debt.)

A third option is “factoring,” which involves selling your Accounts Receivable for immediate cash, at a discount to another company (called a factor).  The factor assumes responsibility for collecting the loan. When the factor collects, it reduces the amount of your loan by the amount collected, less its fees. Factoring helps you build a strong business credit score.

I know it takes time and experience to become a smart CFO. But, I also know it’s worth it. Proper forecasting and managing cash are key business practices. This week, I want you to forecast your cash inflow and outflow. Then, plan to save for rainy days. Also, establish a relationship with a good lender, so you can lighten your stress. That’s what smart CFOs do!