Cash Flow and Controlling Expenses—Managing Your Business
(Part 2 of a 3-Part Series: Planning a Successful 2012 FBO Business Strategy)
By John L. Enticknap, Aviation Business Strategies Group
The buck stops with the guy who signs the checks.
In the first installment of this series, we discussed our FBO Business Outlook for 2012. At the recent NBAA Schedulers & Dispatchers Conference held in San Diego, we had a chance to discuss this outlook and the current business climate with a number of FBOs in attendance.
Many we talked to agreed with our forecast of a slow uptick of around 2.5 percent average industry growth in 2012, with some individual FBOs experiencing up to 5 percent growth or even possibly more. We met a number of FBO owners and managers who indicated they were ahead of the 2.5 percent growth rate for 2011 and expect to do better than the 5 percent growth projection for 2012. And of course, some indicated 2011 was a flat year and they didn’t expect to do much better for 2012.
For this installment, part two of our three-part series, we want to discuss ways FBOs can better manage and even decrease their costs in 2012.
At our National Air Transportation Association (NATA) sponsored FBO Success Seminars, we talk in-depth on ways to generate more bottom line revenue. From growing fuel margins to lowering credit card interest rates, we analyze every operating element in order to maximize the efficiency of each transaction.
The basis for these seminars is our Aviation Business Strategies Group proprietary 10 Steps to FBO Success. You can review these steps on or website www.ABSGGroup.com.
For the purpose of this blog post, we will concentrate on the subject of Cash Flow.
Cash is King
Most business managers or consultants will tell you , “in my opinion, your business can increase cash flow by 5 to 10 percent by reducing operating costs.” Or maybe the “big boss" simply tells you to reduce costs—then walks away!!
The obvious way to do this is to cut overhead and the easiest way to cut overhead is to cut back on the number of employees. However, if you read one of our earlier blogs on this subject, you would understand why this is not such a good idea.
Instead, let’s look at your cash flow situation as one way to better manage your costs. Not to overstate the obvious, but cash is king. Without cash you can’t pay your employees or pay your bills! And depending on your credit situation with your fuel supplier, you may have to pay cash for your fuel deliveries.
Interestingly, a survey completed in 2009 by Intuit (the software company that makes QuickBooks) indicates that 22 million small businesses have overdue accounts for at least $1,500. That equates to 33 billion dollars in overdue cash!!
Cash Flow Case Scenario
Consider a hangar tenant with an overdue payment of $2,500 for a one-month rental. However, the tenant has not paid their hangar bill for 60 days and you’re now owed $5,000. (To make things worse, in good faith, you originally gave the customer a discount on the hangar in exchange for fuel sales this new customer would generate.)
Your accounting procedure calls for 30-day terms but you really didn’t worry about the bill until it hit the 60-day period! So after 60 days you are really owed $7,500 because you’re tenant is now behind two months, plus the current month you just billed. By the time you collect the original $2,500, the overdue amount can easily be five to six months past the original due date, which means the amount due should really be $15,000. Overdue accounts mount up fast!!
No one wants to offend a customer, or so goes the conventional wisdom. But we need to get over that notion. It is outdated and not part of today’s competitive business environment. You may fear hurting the feelings of those who owe you money, but you don’t need them for new business. That’s because they haven’t even paid for the old business! A business transaction is not completed until you get paid and the money is in the bank.
So what do we do about our overdue hangar tenant? As the owner of a multimillion dollar aircraft, one would think our hangar tenant is a business savvy corporate owner and is familiar with large financial transactions, borrowing money, and paying on time. So find out who pays the bills. Most likely it is not the pilot, although he may approve them. Talk to the CEO or the CFO, the person who signs the checks. It does no good to just talk to the pilot, who has no authority to sign the check. Just like our quote from Rupert Murdoch—the buck stops with the guy who signs the check!
Don’t be concerned with threats like “I’ll take my airplane to your competitor,” or ”I won’t buy any Jet A,” or “I’m leaving,” etc. This so-called customer is not really a customer because they don’t pay their bills. By the way, they’re most likely not purchasing any fuel either. If you have to, park the aircraft in the back of the hangar and demand full payment with a certified check or wire transfer. You can then move on to the better customers who value quality service at a fair price.
Want an idea to get attention for overdue bills? Rather than send these delinquent customers a regular overdue invoice notice, send them a vacation-style postcard. Put on it, “Wish we were here, but we can’t afford it since you haven’t paid your bill.” The card is public while it goes through the mail system of the company—it will get attention.
Collect your money—stay in business for the real customers.
How about expenses? It’s easy to say, let’s cut 10 percent! I’ve had bosses tell me that, or call me and say, “cut 5 percent of your employees.” This is no way to run a business.
When it comes to expenses, look at Zero-Based Budgeting. Zero-based budgeting requires that your budget requests be re-evaluated thoroughly, starting from the zero-base. This process is independent of whether the total budget or specific line items are increasing or decreasing.
Another tool is to competitively bid all your expenses. For example, simple office supplies purchases. Put a list together of what you need and send an e-mail or fax to all your local suppliers, like Office Depot, Office Max, Staples or better yet, your local small business office supply firm. They all want your business.
Note: Take the lead from your own customer base. Aren’t they seeking the best deal on fuel prices every day? You need to do the same thing with your vendors.
Here are a few actions you can take to cut expenses and maximize yours profits:
- Put your own expenses up for competitive bids and use your best judgment
- Create a monthly expense budget and stick to it
- Never let expenses become routine
- Benchmark your expenses to see trends from various vendors
- Put systems in place to control expenses
- Set approval levels by expense category and employee
- Set the authority to approve all expenditures
- Watch expenses by adding and tracking three key financial metrics weekly in your flash report
- Cash Balances
- Payables Balances
- Receivables Aging
Management Flash Reports
Now let’s talk about your Flash Report, Dashboard or Daily report, whatever you call it. First and foremost, you should have a Dashboard Report you can refer to in order to get real-time information on the metrics of your business. We discuss this in detail in our FBO Success Seminar.
Your report should include fuel pumped on the previous day, MTD and Budget MTD. It should also include the productivity of your maintenance shop, charter department and flight school. In addition to the financial metrics we mentioned above, you can include other easy to print reports from your accounting system. Let your bookkeeper be your “virtual CFO” who can regularly produce these reports—on-demand and without visiting your office.
Are your eyes on the money? If not, how can you be sure that you’re making any?
Next in the Series:
Part 3: Increasing FBO Productivity in 2012
Let us know what you think! Please e mail us at email@example.com
Ron is Co-Founder of ABSG and President of The Jackson Group, a public relations agency specializing in aviation and FBO marketing. He has held management positions with Cessna Aircraft and Bozell Advertising and is the author of Mission Marketing: Creating Brand Value and co-author of Don’t Forget the Cheese! the ultimate FBO Customer Service Experience.
John founded Aviation Business Strategies Group in 2006 following a distinguished career in aviation fueling and FBO management, including as president of Mercury Air Centers. He is the author of 10 Steps to Building a Profitable FBO and developed NATA’s acclaimed FBO Success Seminar Series.