Thermal spray cash flow

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Thermal spray businesses everywhere have the same problems and business basics to consider as any other business. Even though the thermal spray company may have been initially started as a passion of the entrepreneur, very soon he or she will have to get to the basics of managing the thermal spray business as any other business is. While business management and the daily accounting of business activities may not be what gets the juices flowing of the thermal spray business founder, that however is the reality that has to be faced. And while there are many aspects of business management skills that one needs to acquire or put into practice, what we shall limit ourselves in this brief post is simply managing the cash flow in the thermal spray business.

Managing cash flow in the thermal spray business basically boils down to adjusting your incoming accounts receivables to match or exceed the outgoing accounts payables. Notice that we are very carefully choosing the term incoming accounts receivables as opposed to saying your incoming revenues. This is a key phrase. Because most thermal spray companies seem to be extend credit to their customers to ridiculous levels, with the result that a large portion of their incoming revenues is actually tied up with their customers. When their vendors and suppliers expect payment in thirty days but their receivables run into one hundred and twenty days, a catastrophic cash flow situation is bound to ensue. The accounts receivables department needs to maintain strict credit standards, regardless of who the customer is. A weak collections area is a definite negative in your thermal spray operations.

The next step in managing cash flow is the management of debt service for your real estate and equipment. Every so often, you have to shop around to find the lowest interest rates that you can find and refinance your debt to lower interest levels. This is an area that most thermal spray businesses do not even seem to consider. Once a loan is obtained for building or building expansion, thermal spray equipment purchase and the like, that loan is seldom revisited and reevaluated. Consider paying off loans with very small outstanding balances to enable improvement in cash flow management.

Extend the terms of your payables in turn to as long a payment period as possible without incurring interest charges. A very good strategy in this regard is the implementation of consigned inventory on your thermal spray consumables such as powders, nozzles, electrodes and such. Establishing a strong line of credit is a must for every business, but ensure that the bank will honor the line of credit and not baulk at renewing it every year. Some banks lately are NOT renewing the lines of credit for their business customers and check with your bank well ahead of time before you need to dip into it.

In all cases, whether you like it or not, managing cash flow is extremely important for the very survival of the business and anything less than perfect control in this area is liable to cause lots of problems down the road.

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1 comment:

rummuser said...

I have come here only to thank you for visiting my blog and commenting. I would of course consider it a great privilege if you could make it a habit. An Indian perceptive to what I write about can be very refreshing as most of my readers and commentators are non Indian.

I can indeed comment on cash flow management too, but would not be able to add anything significantly different to what you have written. You will recollect that I had apologized for not commenting on your blogs because the subject is not something that interests me nor something about which I know anything.