Small Business Cash Crunch
Appraisers & their frustration with cash flow…
I recently attended the Association of Texas Appraisers (ATA) Mid-Year Meeting in New Braunfels, TX. I met many wonderful ATA members and the meeting was well organized. Much of the meeting consisted of discussions on Texas Appraiser Licensing Certification Board (TALCB) commission activities, technology tools for appraisers, and USPAP.
Since the topic of cash management rarely is presented in any appraisal meeting or event (but it should), I took the time during the networking sessions to learn more about the financial successes, struggles, and conditions of appraisers and their businesses. Some appraisers shared they are so busy that attending the ATA meeting was a much-needed break from their hectic schedule. Others wished they were busier and could use more work. Something they did have in common was frustration with cash flow.
One thing I learned is that small businesses oftentimes have little bargaining power when working with larger customers. They are often subjected to lengthy terms that are outside of their comfort level. Small businesses are sometimes left with two choices:
- Work with lengthy terms to gain business, but be exposed to financial stresses if money is not managed carefully.
- Decline participation and losing business (which means not make money), but holding on to their terms and business model.
Appraisers are often presented with orders that are attractive, but offer lengthy payment terms. Some appraisers are not bothered by the slow pay due to the fact they are getting paid their full fee while others choose to decline the order because it does not meet their screening criteria of getting paid within 30 days.
Each appraisal business is different. Each has its own financial challenges and needs. In this instance, whether you take on an order or kindly opt-out, you expose yourself to slow pay or limit yourself from growth. This makes it important to manage your cash wisely.
Cash flow management is simply defined as delaying the outflow of cash as long as possible while at the same time encouraging anyone that owes you to pay as quickly as possible. We understand this. This is Business 101, right?
Many large companies follow this concept and continue to hold on to their money, therefore delaying payments to small businesses. At the same time, small businesses are experiencing faster payment requests from creditors, vendors, or suppliers. This combination creates a cash flow crunch for many small businesses that may be struggling or trying to grow.
This cash crunch exists among appraisers not just in Texas, but also all over the country. As banks, lenders, and AMCs continue to delay payments to appraisers, the frustrations of not getting paid in a timely manner coupled with the stress of meeting expenses remains. Also, with the busy driving season coming soon, concerns over rising costs of fuel further creates financial uncertainties for the future.
Assessing Cash Flow
Preparation is key when it comes to managing cash flow for your appraisal business. Create cash flow forecasts for next year, next quarter, and next week, especially if cash is tight. Preparing cash flow projections can help you recognize any potential financial troubles before it happens.
When creating cash flow projections you are not looking into a crystal ball and predicting your future, rather you are making an educated guess based on how your customers pay, your understanding of upcoming expenses, and your creditors’ willingness to wait for payments. Create a detailed cash flow projection by outlining amounts and dates of upcoming cash expenditures. Knowing when your money is going to be disbursed is important, but understanding where your money is going to is key. This allows you to better manage the financial ebbs and flows of running an appraisal business.
Know What’s Available For Your Business
Chances are most small businesses will experience some sort of cash crunch in their lifetime. This does not mean these small business owners are failures. No one can perfectly predict their financial future. It’s all part of the growing and learning process! Fortunately there are resources to help small businesses to grow.
Traditional Banking – An Idaho business banker that I’ve know for several years informed me their regional bank is ready to lend money to small businesses. She said, “Anyone needing a business loan or line of credit… our bank is ready to do business!” If traditional banking is an option for your appraisal business to provide a safety net when cash becomes tight many banks are “ready to do business.” Talk to your local business banker for available products.
Alternative Financing – If bankers will not help, consider working with a factoring company (called factor). I introduced factoring in my previous article called “Where Is My Money? Factoring Your Cash Flow”. Factors provide a financial service where your appraisal business can be funded today for receivables that normally pay weeks or even months. Working with a factor will also help you eliminate the hassles of collecting and allow you to take on the next order worry-free.