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February 10, 2009

Cardmember Profile: Water Journey

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Summary

Practices for protecting your cash reserves and managing cash flow.

Water Journey’s cash reserves have never run dry. In order to make sure that remains the case, Glick uses these practices.

Francine Glick is a tech-savvy entrepreneur. She purchases the latest gadgets when they debut. She’s fluent in her company’s accounting software. And she’s always looking for new technologies that can automate or enhance her fast-growing business, Water Journey Ltd., which makes the Hands2Go instant hand sanitizer carried by such retailers as Bed Bath & Beyond and CVS. But when it comes to managing cash flow, Glick relies on some decidedly low-tech techniques to keep her business humming along. “It’s all about finding the right people and asking the right questions,” says Glick.

When she first launched her business, Glick micro-managed her money. She could tell you account balances, outstanding revenue and other financial metrics at any time. But as her business grew, Glick found herself spending too much time invoicing customers and pursuing payments instead of building her business. “I hired a financial manager probably later than I should have,” says Glick. “At the time I was overwhelmed. When you have to lead a business you can’t spend all of your time collecting, depositing and paying bills.”

Fortunately, Water Journey’s cash reserves have never run dry. In order to make sure that remains the case, Glick uses these practices.

Find qualified help
Instead of seeking a financial manger through online advertisements, Glick stuck with a simple ad in the local paper. The ad included a specific job title (“Executive Assistant”), a description of required skills (“must be a master of Intuit QuickBooks,” the accounting software) and a required strengths (“must be an organized self-starter”), among other requirements.

Writing the ad forced Glick to really think about the ideal job candidate. It also allowed her to minimize inquiries from job seekers who weren’t a match.

Glick hired the very first person who applied for the position – though she didn’t make the offer during the initial interview. Glick avoided that temptation and instead interviewed a few more candidates. This process reinforced her original hunch that the first candidate was the best choice.

Let go, but not completely
Although Glick doesn’t get involved in day-to-day check writing and payment issues, she does meet with her financial manager at least once every two weeks to review cash flow, accounts receivable, anticipated future bookings and other items. She also meets with her accountant quarterly to make sure she’s aware of the company’s tax obligations, to avoid expensive surprises at tax time.

These regular meetings weren’t always part of Water Journey’s business processes. When the financial manager first started, Glick initially stepped too far away from the company’s finances. “There was one time when our financial manager was out on vacation and I panicked,” says Glick. “I used to know all the numbers off the top of my head. But that was no longer the case.” That’s when Glick and Water Journey’s financial manager decided to set up those regular meetings to review the finances.

Sometimes negative cash flow is okay
Negative cash flow – where your payables exceed your receivables – can occur occasionally. For example, seasonal businesses typically have negative cash flow during low times, but make up for it during high season. In Glick’s case, this can mean having to spend to build inventory in preparation for busy times such as the back-to-school season.

Glick plans for this by keeping a running cash flow statement that looks ahead three to six months to see when cash flow may recover. “As long as you know what the event outcome is going to be – big sales when school starts, for instance – it’s okay to briefly have negative cash as you build inventory,” says Glick. “But that doesn’t mean I like it.”

Find money when you don’t need it
Glick went looking for credit sources before her company needed it – which was a wise step for an emerging company with unpredictable long-term performance. To help manage cash flow, a line of credit can be a bridge when finances get unbalanced. “As long as you only use it for emergencies and don’t become dependent on it, a line of credit is a useful tool,” says Glick.

Glick’s first stop was her local bank, where she already had a personal account. “If you have good personal credit, there’s tons of money available – especially if you’re looking for $50,000 or less.”

Still, Glick knew the hunt for money could wind up hurting her credit score. The reason: Each time she applied for more money, the potential lender would run a credit check. And the more frequently lenders check your credit score, the more likely your score will drop, she notes.

In order to avoid this downward spiral, Glick wouldn’t allow a potential lender to look at her credit rating until the lender outlined potential terms of the deal. “I asked them what they were willing to offer me right up front,” she recalls. “If you talk to three lenders to find the best rate, they’ll all be running a credit check and that will lower your score. By negotiating before the credit check, I was able to find the best lender for our needs, and only permitted that lender to check my score.”