Brian Gronberg, chief executive officer of the motorhome-rental company CanaDream Corp., had no idea what was coming when the global recession hit, but he immediately started looking for ways "to take the gamble and guess out of it."
One thing was certain: "We knew we were going to be challenged from all fronts, financing being one of them. So we determined that we needed to go to weekly cash management in early '08. That's the first thing we did," Mr. Gronberg recalled from his company's Calgary headquarters. Previously the firm held monthly budgeting sessions.
Tighter budgeting and more accurate forecasting were essential to ensuring the company had enough cash to meet its obligations and maintain its fleet of motorhomes and recreational vehicles, Mr. Gronberg said.
CanaDream then reduced wasteful practices such as delayed communications between the front office and the maintenance shops. The company also bolstered its cash position by selling excess used vehicles.
For CanaDream, the new strategy paid off and the company, which was incorporated in 1994, recently reported its best first quarter ever for the three months ended July 31. Profit of $2.1-million was up 10 per cent from the same period a year earlier, and the $8.9-million in cash flow from operations was up 14 per cent. The company said it improved its cash position through earlier receipt of prepayments for reservations, and by negotiating more favourable terms with suppliers, who were willing to wait until the RV season was under way to get their money.
CanaDream has gained traction, but many other owner-operated businesses are still spinning their wheels, even as the economic recovery takes hold, accountants say. Indeed, 77 per cent of 711 small- and mid-sized business owners recently surveyed by the Toronto-Dominion Bank cited cash flow as the biggest barrier to their success.
"It would make sense that cash management would be the one area where business owners and managers would surely excel. Yet in reality it's the one area where they find themselves in the most trouble," the Canadian Institute of Chartered Accountants says in a new cash-management guide, prepared in conjunction with Canadian Imperial Bank of Commerce, to be released Friday.
Calgary-based chartered accountant Devin Wagner, a senior manager specializing in corporate finance and business valuation with Grant Thornton LLP, said that, even during the economic slump, "most companies just figured the cash was [still]going to come through the door. "They didn't really spend any time actually managing that, understanding what their burn rate was on a monthly basis, on a weekly basis, what kind of expenses they were going to have in the next month," Mr. Wagner said.
The balancing act is made more difficult by slow-paying customers, Grant Thornton notes in a white paper on cash flow. "Collecting from your customers is an important thing, especially out West here when you are dealing with some of the large oil companies. They can be notoriously slow payers," Mr. Wagner said.
"It's a fine line. You don't want to be ticking off your customers. At the same time, you have to make sure that payments are coming in at a regular time and that accounts receivable don't get too long and too dated."
On the accounts-payable side, Grant Thornton advises clients to negotiate better terms with suppliers. "If they want to get your money in sooner, maybe they are willing to give you 2 per cent off the price or something like that – just to improve their cash flow as well. Everybody has the same issues," Mr. Wagner said.
Grant Thornton also recommends companies go through rigorous monthly cash budgeting to anticipate shortfalls. CanaDream is not one of Mr. Wagner's clients, "but if they're looking at weekly budgeting, that's a great way to go," he added.
Mr. Gronberg and his management team take the financial pulse every Thursday and refine their forecasts. Bank reconciliations are conducted daily.
The company has invested in a new staff training program that has improved productivity to the point that the company will not need as many seasonal employees for the 2011 RV season, Mr. Gronberg said. And a computerized "daily activity screen," through which all departments communicate, has resulted in fewer costly breakdowns on the road to recovery.