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Thread: Wages and cash flow

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    Wages and cash flow

    If you have a serious cash flow problem due to non payment from customers, can you put staff on short time until the cash flow issue is sorted out, lets say for a week or 2?

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    Diamond Member Justloadit's Avatar
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    You are the boss, and therefor can make this decision. Alternatively talk to your staff and explain the problem, after all them not working also affects your business as there is no income. They may take a deferment of payment, or a partial payment.
    Victor - Knowledge is a blessing or a curse, your current circumstances make you decide!
    Solar and LED lighting solutions - www.microsolve.co.za

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    Is the staff temp/ casual or full time employed? It will be easier on first instance, but u will need to engage proper HR process on full time employed
    Good luck

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Justloadit View Post
    Alternatively talk to your staff and explain the problem, after all them not working also affects your business as there is no income.
    And they're not earning money either.

    I'm inclined to agree with Justloadit - talk to the staff about options.

    If there's a shortage of work, short time is the answer (from a "long term survival of the business" point of view).
    However, if it's a matter of cashflow only, not only are the staff going to be paid late, but they aren't putting in the time, which will hurt their next pay check too.

    Whether they'll help or lynch you probably depends on your relationship with your staff. But a clear plan well presented on how to get over the hurdle while minimising the pain might well be supported.

    The big trick will be to make sure you can honour any promises you make...
    The trouble with opportunity is it normally comes dressed up as work.

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    What about the labour law?

    This is why I stick to the belief that no matter how big or small the contract you have in progress, how many customers you have, sale teams, goals, budgets, etc. etc. when the cash stops flowing be it R500 or R 5 million, unless you have a backup plan, like a trust fund, it is just a matter of time and you will be joining the failure stats.

    We are so busy at the moment and have enough work lined up until middle of this year, but the cash has stopped flowing. I closed all my accounts which at this point turned out to be a really dumb thing to do, I should have made sure I had enough money saved to pay for materials for a couple of months and at least 2 months wages.

    There is a good side to this and a bad side, the good part is going to be once I get paid all the money goes into my account and everything is already paid up in full.

    The bad side is if I dont get the money in on time I might have to close the company, or look for a job until I get paid. I have setup the saving account for my vat and wages so that side of this is on track, my R99 personal account has been approved and the credit card, so I can separate my personal spending from the business, which will in turn stop me from spending more money than I have in the bank rather than on my overdraft. For now I have to put my head down and just keep at it until these sorts itself out.

    I was considering expanding the company by another team, but after this fiasco, I think I am gone bite the bullet and just decline the new work for now.

    The down side is every day I am getting more and more customers, all from word of mouth and because of the projects I am busy with, people visit the sites I am working, see the quality of work and want me to come take over their projects. The best compliment so far, this looks like a picture from a magazine" and I am hoping it will be soon, which I believe is going to open up a whole new chapter of work and new customers. Deep breathe; I am positive it is going to happen.

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    Diamond Member Justloadit's Avatar
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    Quote Originally Posted by ians View Post
    The down side is every day I am getting more and more customers, all from word of mouth and because of the projects I am busy with, people visit the sites I am working, see the quality of work and want me to come take over their projects. The best compliment so far, “this looks like a picture from a magazine" and I am hoping it will be soon, which I believe is going to open up a whole new chapter of work and new customers. Deep breathe; I am positive it is going to happen.
    This is good news, as it now allows you to push up your fee for your services, as now you have gained a reputation in the market. You have done a lot of hard slogging to get to this point, to give it up now will be a failure!

    Make a plan, and go back to where you cancelled your accounts and ask for a new one, there is no reason why they will notgive you an account, after all you have a good history with them. Once you feel you are back on your feet, then ween off the accounts, by paying early and requesting a early payment discount. in this way yo have the best of both worlds.

    Just remember having orders come in, and growing is great, BUT IT HAS TO BE FINANCED!
    The best way to finance this is to use other peoples money if possible.
    Victor - Knowledge is a blessing or a curse, your current circumstances make you decide!
    Solar and LED lighting solutions - www.microsolve.co.za

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by ians View Post
    I closed all my accounts which at this point turned out to be a really dumb thing to do
    You're talking about supplier accounts, I assume.

    I'm curious - Why did you close the accounts?
    The trouble with opportunity is it normally comes dressed up as work.

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    Like overdraft facilities, supplier accounts, credit limits on credit cards, they all make you spend more money than you have, well, for some of us. Some people can control their spending unfortunately i am not one of those people. So prevention is better than cure, if i dont have the facitlies i cant use them.

    After having a motor vehicle accident many years ago and being physically challenged for a couple years, i lost everything and end up on the street, with some help from a few good friends who believed i could get back on my feet, i started working again, bunked in at friends houses and slowly started with nothing, cash dealings, the odd job here and there and slowly built myself up. Then opened a bank account, had a savings account for years, could only spend what i put in, unfortunately because i "managed" my savings account so well, you cant spend what you dont have, the bank offered me a cheque account, and so the down hill into debt started, before i could blink, i was in debt for almost R200 000 with only enough work to barely cover my overheads. I put my head down and worked for a couple of months until i had R200 000 and went around and paid off all the debt and at the same time reduced all the limits, R50 000 credit card, R50 000 overdraft and the rest to suppliers and loans i had taken.

    The reason i have closed supplier accounts, simple, i request a deposit to cover material cost, having the money in the account and a credit facility at a supplier just opens another avenue for expenditure. This way i am forced to insist money gets put into my account (The balance in my account is regarded as the order number no order) before i start the job and easier to walk off site when customers are behind with payments, i see my bussiness as a steam train, no coal(money), no fire, no movement. On 2 occassion i have had to leave site due to slow payment, 2-3 days off site and money is in the bank, especially when the builder cant plaster walls or you are holding up other services.

    It is very simple i am a really good electrican but a really crap bussinessman and dont know how to manage my finances, so it is simple make money put it into the bank, then spend it. I am busy making some changes like drawing a salary every month, opening a seperate account and a savings account for VAT.

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    Diamond Member AndyD's Avatar
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    Quote Originally Posted by ians View Post
    It is very simple i am a really good electrican but a really crap bussinessman and dont know how to manage my finances, so it is simple make money put it into the bank, then spend it. I am busy making some changes like drawing a salary every month, opening a seperate account and a savings account for VAT.
    This is a common problem with self employed tradesmen, I know several guys who are outstanding tradesmen but have got about as much business acumen as a dead cockroach and never 'make money'. It breaks my heart to see what they can do on site but then they only get around to invoicing when they're short of money and can't understand why people give them the runaround for payment when the invoice is only sent 3 months after the work was done.

    At least you have identified your areas of weeakness, I'm not sure closing your supplier accounts was a good move, why not just settle them completely at the end of the month or even every 15 days if you're worried about losing control of them. Keeping your VAT in aseparate account would be a good idea and also drawing a salary into your personal account for your personal use would limit your private spending and probably make your book keeping a hell of a lot easier as well.
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    Originally Posted by ians
    I closed all my accounts which at this point turned out to be a really dumb thing to do
    I am sure your suppliers will be happy to re-open the accounts for you. Having a back-up when times are tough is very important. Supplier credit is also a very important tool in cash flow management.

    Your problem is not uncommon with people who work very hard and also play hard. Get into a routine of checking accounts and bank balances every day. Either first thing when you get home or early in the morning, before you go out to site. Having separate accounts and putting yourself on the payroll is a very good start. There are banks that offer a free basic payroll service and they will take care of UIF, Tax deductions etc.
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