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The Two Primary Rules of cash management

There are two primary rules used by all properly managed

companies, from one-appraiser firms to Fortune 500 companies:

1. Pay your bills only when they are due.

2. Get your income as soon as

possible.


Cash management tips

1. Pay no bill before its time. Don't pay any bills until they're due. See who has a late charge, and who doesn't. Send checks out on Friday to take advantage of the weekend "float."

2. Exercise dormant lines of credit. Frequently business owners set up lines of credit they don't use. The bank may drop your line of credit if it is not used for a certain period of time, so be sure to check its use requirements. If there is an annual cost, such as 1%, many business owners consider dropping a line of credit. But remember the rule of banking: If you really need the money, you probably can't qualify for the loan.

3. If you don't have a line of credit, set one up now - business or home equity. Check around for competitive rates. It's a lot cheaper than using credit cards if you're really in a cash flow pinch.

4. Closely monitor your three sources of cash:

• Appraisals in process, not yet completed

• Appraisals billed out, but not yet collected

• Paid billings: cash on hand

5. Complete and bill out appraisals as fast as possible. The sooner they're billed, the sooner they'll be paid. We're all tempted to "let the work fill up the time available." But it delays payment of your bill. If they don't have the appraisal, they won't pay the bill.

6. Give your associate appraisers a higher fee split if they're willing to wait to be paid until you're paid for appraisals. This policy can be a substantial help to cash flow problems because the highest percent of expenses is appraisal labor.

7. Be very aggressive with past-due accounts, particularly non-institutional companies, such as mortgage brokers. If the mortgage business declines significantly many mortgage brokers will go out of business. Let them be late paying someone else, not you. In collections, the "squeaky wheel gets the grease." Call every day if necessary.

8. Get interest on your money by setting up a "sweeps" account or interest bearing checking account, and doing daily deposits. Even if it's only one or two percent interest, it's better than nothing.

9. Get as many pre-payment or CODs as possible. Offer a discount, if necessary. Require pre-payment from private clients, or business clients that may cause payment problems. If they won't pre-pay or COD, turn down the work. Don't work for free.
Rent - office and storage

• Try to renegotiate your lease to a lower rent, or a temporary lower rent while business is slow.

• Sublet unused office space to appraisers or non-appraisers. Or, move out of your larger office space to a smaller sublet office.

• If you need to move or downsize to a smaller office, but have a lease, work with your landlord. Maybe he or she will let you sublease, make a partial payment of the rest of your lease, or move to a smaller space. In most parts of the country, the office market is not doing well. Landlords are willing to negotiate. Negotiate with the landlord for some type of compensation for phone and electrical improvements you have made and paid for, but will have to leave behind when you move.

• Move "back home" and work out of the garage, spare bedroom, or even the dining room table. If you think it's too cramped, consider it only temporary until business picks up again.

• Shop around for low-cost storage space. We have to save our appraisal files for at least 5 years, and many of us save them for much longer. What to keep and throw out in files is an individual decision, but you can shop for a lower storage cost.

Get rid of excess stored stuff, such as old office furniture. Sell it or give it away. Don't pay storage costs for things you really don't need. Don't be a packrat.
Software

Do you really need an expensive support contract. How often do you call support? I never buy support contracts. I seldom call and am willing to pay the fee, usually around $50 to $100 per call. A lot cheaper than a contract.

Are you using all the "bells and whistles" that cost extra. Do you need all of them?

Maintenance contracts can be expensive. I only upgrade my appraisal software when forms change. For other software, I wait for an update that has something I really need. I very seldom upgrade. I have upgraded after using software for over 5 years. I just paid the extra fee, which was much less than the total of 5 years of upgrades.

Free online forms software is available at www.myetrac.com. There are useage limits but it is free.

Very inexpensive forms software is at www.homeputer. com. They have been the lowest cost software since forms software started in the 1980s.


File storage

We have to save all our work files and scanning is a hassle. But if you keep only electronic copies of your appraisals, that can save space.

Use an inexpensive online service to save copies of your files and even your hard drive.
Ask for business discounts

When purchasing building supplies (Home Depot), office supplies, etc. It never hurts to ask. The worst that can happen is they say no. Home offices are businesses.


Pricing

• Keep close track of your competitor's costs. Don't underbid or lose work because you overbid. When fees are changing, don't get left behind and lose valuable assignments from overbidding, or income from underbidding.

• Don't offer lower prices to a client that isn't price sensitive. Why give away your profits? Not everyone gives assignments to the low bidder. Some don't even do competitive bidding.

• Know your costs on appraisals. The high fee jobs may not be the most profitable. It may be more profitable to set up referral alliances with appraisers in other geographic areas, rather than spend the time traveling and doing extra research on an area you're unfamiliar with.

• Dump high hassle, low pay clients as soon as you can, so you will have time for marketing to new and old clients.
Dues and publications

• Carefully review each organization where you pay dues. Do you really participate, or do you send in dues because "you always have." You can always rejoin later, when business picks up if you feel guilty about dropping out.

• Review the publications you subscribe to. If a publication isn't useful, consider not renewing. Hopefully, you find this publication useful!!
Cut your gasoline expenses

I have the August 2008 article, How to increase your car mileage today - without spending any money, on the subscriber Web page. Here are a few tips from the article:

• Keeping a steady speed is the Number One way to increase gas mileage.

• Cruise control is a surprisingly effective way to save gas. Up to 14-percent savings, average savings of 7 percent.

• Avoiding excessive idling can save up to 19 percent.

• Hang with the trucks - trucks drive at steady speeds.

• Don't drive aggressively.

• Keep your foot off the brake. Drivers apply their brakes between 10 and 25 percent more time than they need to.

• Don't accelerate fast. When you start moving after stop at a red light or a stop.

• Clean out your car. Per AAA, an extra 100 pounds can reduce a typical car's fuel economy by up to two percent. Clean out all the stuff you don't need. Appraisers work in their cars a lot. Some of us tend to accumulate stuff.

Reduce aerodynamic drag, such as a car top carrier. Driving with a car-top carrier cut 6 mpg from their test car, a family sedan.

• Consolidate your trips.


Personnel

• Consider hiring family members, especially older children, as employees. There are tax advantages.

• Use part-time support staff. They don't require benefits and usually have more flexible hours. Laying off a part-timer, or cutting back their hours, is much easier than a long-term loyal, full-time employee.

• Have a cost-cutting brainstorming session with your associates and support staff. If you're working alone, set up a lunch with your accountant or other appraisal business owners to swap ideas. You'll get many ideas you've never thought about before.

• Have one person attend a seminar, and then later "show and tell" the rest of your staff. For example, we all wanted to find out about the new 1004MC form, but the seminars were expensive. Just could have sent one person, who gives a "mini-seminar" to your other associates and yourself.

If you work by yourself, work this out with another appraiser and trade off attending seminars.

• Attend only local seminars to eliminate travel costs. If there's an out-of-town seminar you want to take, call the sponsor and see if it will be offered locally. Or see if you can purchase CDs.

• Broaden staff responsibilities. For example, instead of paying an outside bookkeeper, have your secretary do it. If you have to lay off a full-time secretary because your work has dropped, consider letting a less experienced associate appraiser do part-time clerical work. At least they'll have some income. 30. Instead of having outside firms do janitorial and delivery services, have your employees do it. It's better than getting laid off, or sitting around worrying about getting laid off.

• Get free or low cost consulting from a local college business school's small business consulting programs, or the SBA's SCORE (Senior Corps of Retired Executives) program. They can give you advice on such topics as marketing, collections, and cost accounting.
Insurance

• Be sure you're not overpaying for workers compensation. How are your appraisers classified? They are relatively low risk for a claim and should be classified as real estate agents or some other category, rather than as much more expensive inspectors.

• Do comparative shopping for all your insurance. Sure, it's easier to just renew with the same company, but you may save money by switching.

• Look at your auto insurance coverage. Consider dropping collision on older vehicles. If the car is only worth $1,500, why pay $200 per year extra for collision?

• Raise deductibles on such coverage as auto collision, disability, property/casualty, and liability insurance. For example, have disability insurance "kick in" after 90 days instead of 30 days.

• Evaluate all your insurance policies for their risk/benefit, and decide which ones you think you will really need. Don't over-insure.


Taxes

• Don't overpay your income tax quarterlies. If you anticipate that your taxable income will drop this year, don't pay taxes based on last year's income. Work with your accountant to pay quarterlies based on a more accurate estimate. If you've already overpaid your quarterlies, ask your accountant about a quick refund.

• Close to year-end, schedule a tax-planning meeting with your accountant to shift income and expenses. For example, shift income into the next year to decrease this year's taxes.
Office supplies

• Shop for the best prices. Don't pay too much attention to percent discount. Look at the bottom line. No one pays full retail. Purchasing supplies in bulk may be worthwhile.

• Use office warehouse companies like Office Club. They usually offer the lowest prices. Many will deliver. Don't forget discount stores such as Wal-Mart and Costco. Many carry some of the most-purchased office supplies, like paper, pens, and laserjet cartridges. You don't always need to buy brand names. Use their delivery services to save time and money.

• Keep close track of inventory so you don't have to pay someone to "run over" to the nearby high-priced office supply store, or do it yourself.

• Use email or fax instead of U.S. mail whenever possible. It's cheaper and faster.

• Use the back side of old copies for rough drafts to cut your paper costs.

• Cut "post-it" pads into smaller sizes to use for page markers.
Equipment and phones

• Sell or donate excess office furniture and equipment. Storage space is expensive. You can sell it to employees, the public, or by advertising on Ebay or a local newspaper. Or donate it to local charities or schools.

• When leasing equipment such as copiers, get an option to cancel due to closure or consolidation. Don't get an "evergreen clause", where the contract always continues unless you give 30 days notice. They are difficult to cancel, as the expiration date is hard to monitor.

• Renegotiate your equipment leases. For example, change to a smaller copier. Buy shorter maintenance agreements, so that, for example, if your copier volume is lowered, you can decrease maintenance. See if you really need all your service contracts. Maybe its better to pay for repairs on an ad hoc basis.

• Reduce phone lines. If you have fewer staff, you need fewer phone lines. Cancel some of the optional features you don't really need.

• Fax during off peak hours. If you're on the East Coast, make West Coast fax after 5 P.M., when it's only 2 P.M. on the West Coast. Conversely, on the West Coast, make your East Coast faxes before 8 A.M.

• Carefully evaluate your cell phone use. Now that you can keep the same number when changing services, it may be worthwhile. Use your cell phone for long distance calls.

• Phone costs are dropping. Be sure your long distance and local call carriers are the same - you will get discounts. Check with competing phone services.


Data services

• Shop around and see if you can get your public records data from a less expensive vendor.

• Do you really need all the data you are paying for? If you only appraise occasionally in a county, consider dropping the data. You can always get it when you need it, although it may be less convenient.
Where to get more ideas

Every business is different. Go through your invoices. Carefully look at every way you spend money. What can you change?

Go to www.google.com and search for cost cutting business for Web sites with lots of ideas.


MBA Loan Volume Application Index – 1/07 to 8/09



Note: to read the graph below, switch to reading layout. Click on view at the upper left of the screen and then click on Reading view.

The survey covers approximately 50 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990.  Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100.

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