Club-Owner Strategies for Finding, Saving, Managing Cash

This is for all of you who were stumped over the holidays when a relative asked, "So, how's business?" — given that you have no access to capital and your product is considered a discretionary expense by most consumers.

All sorts of observations and advice, usually proffered by people who don't actually run a business, have left us speechless as the Great Recession has dragged on. Perhaps you've read those articles on "How to Manage Cash Flow in a Down Economy," which advise business owners to "Get out there and sell!"

Gee — thanks!

Or, perhaps you share our disgust with bankers. We had at least four local loan officers actually say to us, "It looks like you had a rough 2008." Uh. . . yeah. Maybe you read about the worst economy since the Great Depression? It was in all the papers, and you bankers had something to do with it. . . ?

But we're not here to offer excuses. We're here to offer advice we think is a bit more sound. With the economic climate still incredibly difficult, we think these ideas will stand the test of time and be part of our new reality well after the economy recovers.

What is our current reality? Unemployment in our region is over 10 percent. Home foreclosures are rampant, and new home sales are stagnant. Canceling a membership for "financial reasons" is all too common. More members than ever are having difficulty paying their dues, and our corporate clients are paying us more slowly than ever.

We began to adapt to this reality in 2008, and we are still learning and adapting today. The "easy" actions were cutting payroll, eliminating free towel service and reducing outside cleaning services. We also did everything we could to control energy costs.

But none of that was enough. We needed more strategies for managing cash, saving money and obtaining capital.

FINDING MONEY QUICKLY

Where do you go when your bank has eliminated or reduced your line of credit? Merchant cash advances are taboo with most business advisers because they are horrendously expensive, but they do provide fast access to capital. These cash advances are paid back via withholding from your day-to-day credit card activity. Most of the vendors who provide this service also want to become your credit card processor.

How expensive are they? You will pay back upward of 40 percent more than the advance, and they will target getting their money back in about six months by withholding roughly 30 percent of every credit card transaction. (They determine how much they will advance by examining several months' worth of your credit card statements.)

Are they worth it? It all depends on how badly you need the money, and the biggest risk is not short-term, but rather long-term when you find yourself addicted to the service. If you need the money, you are likely running behind. So, by paying back 30 percent of every credit card transaction, you will eventually start falling behind again, which means you will go back for another advance as you pay back what you owe. Breaking the addiction can be painful (we know, we've done it).

Your existing credit card processor likely offers this service. If you use a third-party billing company to collect your monthly dues, they will likely have a similar service for somewhat more reasonable terms.

KEEPING CASH ON HAND

You need to embrace being late with payments. We know that sounds terrible, and we never thought we'd suggest it, but it's more important these days to keep your cash than to be a good customer. Some of our corporate clients are terrible about paying us, but we accept it because we need their business. Similarly, we are valuable to our vendors, and we've had to learn how far we can push each of them. Some charge no penalties for being late, while others charge so little that it is worth the penalty to take our time. And, once a late fee has been incurred, we are always as late as possible. To be clear, we are not deadbeats, and we communicate with our vendors, but we do know our vendors and how to manage them.

We prioritize everything, including rent payments, utilities and even payroll taxes. You have to be careful with these payments, since you don't want to be kicked out, have your electricity turned off or get a visit from the IRS. But you need to protect your short-term cash, and all of these vendors might need to wait when necessary. Communication is key. If you need time, ask for it.

TECHNOLOGY IS YOUR FRIEND

Buy a scanner and have all of your key financial information ready to send electronically. Any lender will want several years of income tax returns (business and individual), and cash advance lenders will want bank statements and credit card statements. Getting a competitive bid for your insurance is much easier if you can e-mail a copy of your current coverage. Time really is money, and the faster you can deliver supporting documents when pursuing money, the faster the money will arrive in your account. (Make sure to arrange for an online backup service when you start scanning and destroying documents.)

Also, stop paying for services that technology allows you to do yourself. Processing payroll and submitting those pesky withholding taxes can all be done from your own computer. Payroll service providers do very little that you can't do yourself, and if you really dig into how much you're paying to automate your payroll, you'll be shocked. Anything you can do yourself, from bookkeeping to payroll to cleaning, will save you money.

LEAVE YOUR PRIDE AT THE DOOR

We never thought that after all these years in business we'd still be talking with friends and family about loans and advances. But, as we shift debt and try to save everywhere we can, and as we hear of the occasional friend or family member who is looking for investment opportunities, we are happy to pitch our business. Even though we think we are a great investment, it was always a little awkward to begin that conversation with someone we knew. We've gotten over that. We are now always looking to build a network of friendly investors. In fact, getting away from that is what led us to our first merchant cash-advance relationship, and we want to stay away from those expensive advances in the future.

You might even say that we are now in two businesses, and it took the recession for us to understand this. Our primary business is our clubs, and the business is doing just fine, thank you. The other business is finding, saving and managing money. If you are not comfortable with that being at least a part-time job, you might find that while you've kept your pride, you've lost your business.