If you're running a small business then you're probably broke all the time, especially if it's growing.

The cash float problem during growth is a mathematical rational reality that is easy to understand but
punches you in the gut from time to time.

What I mean by this is that if you are in a position, as most of us are, where you must pay to create something before you sell it and then the customer pays you 45 days later or so, then you have a period of time of at least 45
days, probably alot more, where you have paid for things but you aren't getting paid. This is called 'float'. If your
business is in a steady state, that float will be equal to 2 or 3 months of income. So if your company makes
$240k/year then the float is probably $40k to $60k.

When success comes your way and sales increase to $1.2m per year suddenly your float increases from $60k to $300k. And that money has to come from somewhere. A loan. Your Mom. Robbing banks. Whatever.

People will tell you that that's a "nice problem to have."

Well, not if it bankrupts you it's not!. I really hate it when people say that.

There are many ways to deal with this problem. Factoring is a popular one. My company, Journyx, used factoring in the early days. I hated it. We would invoice a customer and send the invoice to the bank and they'd give us
80% of the money or so right now. Today. That is, once they'd verified the invoice by talking to the customer.

But they were lazy. The bank was reticent to call customers on invoices below a certain size and we had
many many invoices that were small.

So factoring had problems for us.

Another way to reduce float is to squish down your A/R number of days to collect number.

Michael Dell did this famously by outsourcing everything, getting your money before he built your computer, and paying his vendors notoriously slowly (like 90 days or worse). Michael Dell makes Sam Walton look like a drunken sailor on shore leave.

He lives here in Austin so the reality of his reputation here is a little different than the mythology everywhere else in the world. We Austinites know alot of the vendors who sell to him. They squeal alot.

Dell actually created a negative float, enabling him to grow much faster than his competitors at the time. He couldn't have done it without a webstore, a population wiling to buy direct on the web, and vendors who were willing to be paid very slow (essentially to lend him money interest free.)

If you're in consulting, you probably can't get away with this. But you can automate employee time collection, import the data into QuickBooks and in the process get those several hundred thousand dollars of paper timesheets off of your floor and this will reduce your float from maybe 3 months to 2. Getting bills out faster is worth alot of money.
If you can reduce your float permanently it's worth boatloads.

But careful if you slip up, if your A/R days to collect number starts to creep up, that money has to come
from somewhere and you could get into trouble fast. Been there. Done that.

Next time I'll talk about a special magic trick I've found to save big on quality employees that many small businesses could also use.

Curt Finch is the CEO of an employee time tracking software company.