When I was a teenager my Dad explained his financial situation to me:
“Bryce, I don’t make any money I just watch it pass by.”
Today I’m realizing how this feels. Business is a booming! (knocking on wood), and as the business grows managing cash flow has become a head ache and a half. Wire transfers taking weeks to be delivered and credit card payments taking days to process have kept me up at night over the past two weeks.
If you are an employee you probably have a hard time understanding cash flow issues. With a paycheck on auto-debit your impression would naturally be as long as cash comes in everything will be fine. Why wouldn’t the same apply to business? If a business is making money, it would seem, money would not be a problem. But in the simplest of all businesses, the practice of invoicing and waiting, can be crippling.
At Smarter Social Media we do a lot of media buying. We are purchasing online ads with search engines, social networks and blog networks. As an agency we often pay for these ads on behalf of our clients and add the amount into their monthly service invoice. So while a client may pay $10,000 a month for online marketing service – a seemingly profitable proposition – we find ourselves routinely out $50,000 in fronted advertising expenses, until the client pays the advertising and service invoice.
This could be easily addressed with business credit, but in case you haven’t noticed the flow of credit has been pretty restricted of late. On top of this we have been dealing with interbank rivalries. We bank with Bank of America but have our credit cards with Citibank (for the AAdvantage Miles). This month we tried to pay off our new Citibank card. The money came out of our BofA account and showed up on our Citibank statement, but Citibank refused to release a hold on our credit card until we got a BofA representative on the line to confirm that the money was in transit. Citibank had recieved a check that BofA cut itself and still would not release the hold on our card until the money arrived in their account, or BofA assured them it would. Allow me to ask the logical question – if BofA cut the check, isn’t that assurance that the funds are in the account?
On the TaskUs side of the business, the process is made all the more fun by international money transfer regulations. Moving money from the U.S. to the Philippines would seem like an easy proposition. The two countries are allies and there isn’t a lot of terrorist funding or money laundering flowing through Manila. But sending money from a U.S. bank account to a Philippine account can sometimes take a whole week!!! Services like Xoom allow you to transfer money in seconds, but these third party payment services are crippled by Federal Reserve approval regulations and a banking community – Bank of America in our case – that is hostile to innovative third party providers who take away their lucrative $45.00 per transfer stream of income. If I need to move more than a few thousand dollars from the US to the Philippines in less than 72 hours, I can’t. Period.
In practice this has meant that client advertising campaigns have been paused, bills have gone unpaid, the resulting penalties incurred, and, worst of all, employee salaries have been delayed. Clearly, this is no excuse for this kind of chaos. Other entrepreneurs deal with the cash flow headache, avoiding these problems, and I have learned valuable lessons over the past month that will help me avoid these consequences (but not the headache) in the future.
All the same, I am shocked at the sclerotic state of our financial system. The result of overbearing bureaucratic regulation and a financial system made up of dinosaur corporations that continuously fail to innovate.
As always, I’m routing for a new batch of entrepreneurs to challenge the establishment and make managing my business’s cash flow easier.