Accounts Receivable Riskiness

Sales growth is only part of the equation when thinking about expanding your business; getting paid is the obvious other priority (and it just might be the biggest one). After all, if you’re not able to collect on your accounts receivables, it’s pretty hard to pay employees, manage operational expenses, or even consider planning for the future.

I’ve previously written about “Ensuring Customer Payment” and the importance of due diligence on a business owner’s part for following up with customers and making transactions more seamless. But have you ever analyzed the diversity of your ‘accounts receivable risk?’

OPEN Forum recently posted an article about accounts receivable risk and determining your accounts receivable concentration risk ratio. This ratio basically maps out who owes you what, and how much each value is relative to everyone else. It’s a great exercise for both economics geeks and, well, the rest of us who just want to get paid. Because accounts receivable risk refers to the likelihood that a particular customer becomes unable to pay what they owe, the goal is to have a ratio that is less concentrated so that your business is not dependent on the impact of one company failing to pay. (Check out the formula for calculating your business’ concentration ratio here.)

Reducing your concentration ratio is the next step.  This can happen by selling more to new customers or incentivizing your largest customers to pay faster through discounts for early payments or other benefits.  If you have leverage with your customers, you can also mitigate the risk of non-payment by acquiring credit insurance or using accounts receivable factoring companies to purchase your receivables in order to give you immediate capital. Although, factoring companies only give you a percentage of your accounts receivables, the capital inflow to your company is immediate and this type of small business financing can give you the jolt that is needed to kick-start your company.

At the end of the day, it always comes down to money. With the right information at hand, you’ll know which accounts need more hand-holding than others – and hopefully, a few tips for how to influence faster payment at the start.

Photo courtesy of Breakmould.

Advertisement

The Food Truck Business Model

It’s an understatement to say that food trucks are all the rage because it’s literally a “movement.” And really, this isn’t surprising as small businesses and entrepreneurial start-ups are thriving in this economy. Food trucks are the epitome of small, mobile, adaptable businesses going after their target markets.

Notably, a GPS-oriented Food Truck App launched this spring, debuted by the company that leased Kogi BBQ its first truck and helped kick off the nouveau food truck craze. Roy Choi of Kogi BBQ is also one of Food and Wine‘s Top Chefs of 2010 (check out his business tips). Additionally, the Food Network is premiering its new show Food Trucks later this summer on August 15, 2010. So it’s already been a big year for food trucks! And as cities across the county take pride in their favorites, this national sensation not only bolsters the local economy, tourists flock toward them too.

So what does it take to run a food truck? Well, the biggest seller for jumping into the market is mobility and a somewhat lower initial capital investment – over a brick-and-mortar restaurant. But as every entrepreneur will tell you, it’s easy to run after tangents that spider off of an original business model, that is if you have one. Inc.com posted an informative article about “How to Open a Successful Food Truck,” which also included a number of operational considerations such as city permits, insurance, and parking fees. New York Magazine also published an article on “How to Start Your Own Food Truck,” noting start-up operating costs and acquiring/retrofitting a truck as significant measures to acknowledge.

Probably one of the most influential contributors to the making of a successful food truck culture in any city are the street vendor licensing and permitting requirements. The Seattle Times recently posted an article in its Retail Report about how the Mayor plans to recommend street food rule changes to the City Council. “Street Vendors” are even qualified as a characteristic of a thriving business district by the Seattle Office of Economic Development. Yet, a number of strict regulations imposed in the 1980’s have limited Seattle’s street food scene to a minimal number of trucks and a battalion of hot dog, popcorn, and espresso vendors. Check out the main changes being proposed here. There’s a mixed emotion for the relaxed rules, given the potential for increased business competition. And there may be a few learning opportunities from Portland’s street food scene.

Regardless, food truck entrepreneurs have mastered the use social media to create consumer demand and a loyal following. They’re experts at building relationships and communities of fans – who wouldn’t want to discover their tricks? (See Mashable‘s video and Forbes‘ article.)

In Seattle we’re fortunate to have a wealth of fresh, local, and creative food – it will be interesting to see how a bigger food truck scene reflects this. And with our successful farmers market culture, I wonder if the mobile CSAs of New York City will make their move West – will truck farming be the next movement?

Photo courtesy of ibeginz.