Bill Paying and Reputation - Transmission Digest

Bill Paying and Reputation

Paying bills is one of the most difficult things we have to do in business for a number of reasons. One that always bothered me was that the money I worked so hard to get didn’t even have a chance to get all warm and comfortable in my checking account before I had to take it out to pay bills. The old “hard-come, easy-go” scenario. It was almost like the money was never really there. Time is another factor. The time it takes to pay bills pulls you away from money-making activities, and we all know that’s where we should be placing most of our energy. Of course some of us have bookkeepers to help with the bill paying, but often we need to get involved anyway to determine who needs to get paid now, who can wait longer, and how much we can pay each creditor.
Bill Paying and Reputation

It's Your Business

Author: Terry Greenhut, Business Editor
Subject Matter: Bearing the costs of business
Issues: Strategies, words of warning

It’s Your Business

  • Author: Terry Greenhut, Business Editor
  • Subject Matter: Bearing the costs of business
  • Issues: Strategies, words of warning

Paying bills is one of the most difficult things we have to do in business for a number of reasons. One that always bothered me was that the money I worked so hard to get didn’t even have a chance to get all warm and comfortable in my checking account before I had to take it out to pay bills. The old “hard-come, easy-go” scenario. It was almost like the money was never really there. Time is another factor. The time it takes to pay bills pulls you away from money-making activities, and we all know that’s where we should be placing most of our energy. Of course some of us have bookkeepers to help with the bill paying, but often we need to get involved anyway to determine who needs to get paid now, who can wait longer, and how much we can pay each creditor.

These decisions are based on the money we have at the moment and what it will mean to our reputation if we don’t pay certain ones right away or don’t pay the full amount. It’s a juggling act that many small business owners feel they need to manage even if they physically have someone else writing the checks. Then there’s the time we spend worrying about how we’re going to pay the bills. Worrying not only kills productivity but is responsible for most of those grey hairs on your head that might be developing too early.

In a perfect world – that’s a joke, folks, because we all know there is no such thing in the auto repair business – but if there were, we would have so much money in our bank accounts that when bills come in we would pay them right on the spot, or even better, we’d know that we have so much money in our accounts that we set up automatic payments for just about everything. So much for that fantasy.

In the real world we don’t usually set up automatic payments for anything but the ones we are afraid we will forget that might end up in a tow truck coming to repo one of our cars or a piece of equipment. Other than that, we want to be able to control what comes in and goes out on a monthly, weekly, and even a daily basis. That’s not to say we don’t want to pay the bills. We do, probably more than anything else because by paying all of them we get to see what’s left over. I think that’s called a profit but don’t get too excited yet.

There are other things you have to pay besides bills that can leave you gasping for air before you can get your head above water. There’s payroll and payroll taxes, then there’s sales tax, and if you should happen to make a profit there’s the tax on that too. And don’t forget the payment to Uncle Bob for the money he lent you to start up this whole shooting match in the first place.

How’s all that for carrying around a heavy weight on your shoulders day after day? So much so, in fact, that often you may wonder why you ever chose to become a small-business owner in the first place. Wasn’t it nice to just go to work every day, put together a few transmissions, and get a consistent paycheck at the end of the week? I used to think about that a lot, as I’m sure many shop owners do, but then there are those times (often few and far between) when you string three or four great weeks together, break sales records, have few or no comebacks, all your employees show up for work and get along with each other, and no customers get mad at you. You get so happy you tell the bookkeeper to pay everything including giving you that check you were supposed to have gotten weeks ago. Life is great, however fleeting.

If we do make some good money we need to be careful with it. For example, never make long-term purchases based on the amount of business you’re doing today. Remember that when you get a new vehicle or piece of equipment for the shop with a five-year lease or loan, you are assuming that you will be able to make those payments for the next five years, but we know how much business changes over that period of time. If you aren’t sure, look back. See how much it’s changed in the last five years. Then ask yourself, “If this roller coaster trend continues or if things just get worse and stay that way, will I still be able to make these payments?” We always need to think in terms of worst-case scenario, not best; then if it all fits, move forward.

Often we want to buy equipment that makes it convenient for us to do certain jobs. That equipment sometimes costs a lot of money. The questions to ask yourself are:

  • Have we been able to do this type of work with the equipment we already have? How much of that type of work can we get?
  • Will making those payments be better or worse for us than getting by with what we have or what we can rent or borrow for those occasions when we need it?
  • How much do we want to pay for the convenience of having that piece of equipment sit in the shop?
  • How much money will that equipment make for us over and above what we have to pay for it?

I’ve consulted with shop owners on both ends of that spectrum. There are the ones that feel they have to have every piece of diagnostic equipment out there. Of course that also means providing the necessary training to make it all usable, and let’s not forget the yearly updating and the time when you’re told they no longer update that model so you again have to get a new one. On the other end we have the shop that has the most rudimentary testing equipment and hires the local travelling guru when they run into a problem that they can’t solve. He usually charges a couple of hundred for his time and is able to point out what part they need to replace and why. On either end or in the middle they all need to subscribe to a tech service or two or three so they can find out if the problem they have is common or unique. Since most are common they can often get an answer that way. The question, as always, comes down to: What’s best for you or what can you afford to pay for your convenience?

What is your bill-paying reputation? Do you always pay on time? If you don’t, what then? There are several theories about how to pay bills when you don’t have enough money to cover them all. Some say, “Pay the little ones first. Get them out of your way so you don’t have that many to think about.” Others say, “Let the little ones pile up. No one is likely to sue you for little bills.” There are those who would tell you to pay the ones that will otherwise shut you down like the rent and the electric bill.

When I first started my business, my expartner told me to always be 30 or 60 days late even if I had the money to pay everything. His theory was that if you start out paying a little late your creditors get used to it; so if you get into a little trouble and have to pay even later for a couple of months they won’t squawk too much because they already know you’re a late payer but that you always do pay. He felt that if you always paid on time and then one month you couldn’t, the creditors would think something major was wrong and immediately begin to go after you legally. That may have worked well a couple of decades ago, but with the current state of technology it’s too easy for any creditor to put a black mark against your company or you personally, making it more difficult for you to get credit in the future.

If you’ve been in this business any length of time, you know that there have been and will be times when pickins are a little slim and you might not be able to cover all of your commitments. I’ve always felt that the best action you can take is to pay everyone something. It shows that you haven’t forgotten any of them and that you are making your best effort to pay. The key to making it work, though, is to call each of them before they call you. Tell them the situation, how much you are going to send them and when they can expect the rest. I’ve never heard of a creditor, other than a bank on a mortgage, refuse to accept a partial payment and close anyone out.

Words of warning: Don’t mess with payroll or sales taxes. They need to be right up there at the top of the payment list. It’s way too easy not to pay them when things get tight. Unlike your other suppliers they don’t call and threaten to put you on COD or cut off your account. They just let it build up for a while and then drop a house on you. Between the interest and penalties it won’t be something that’s easy to climb out of. The best thing you can do if you’re not the world’s greatest money manager is to set up separate bank accounts for taxes, then every time you do a payroll, deposit all the withholding money along with your contribution to the account. For sales tax, when you figure out the weekly receipts, deposit the tax you have collected in the sales tax account. Always remember that what you collect is not yours. You’re just holding it for the government, and they want it.

Two more quick rules to keep your reputation intact. Never cheat an employee out of money. Always give what you promised. If you don’t, word will get out and you won’t be able to hire good employees. Never bounce a check. Be sure there is money to cover it before you write it. If you get a reputation for writing rubber checks nobody will trust you. I knew a shop owner once who had more than 50 employees. Come payday he would hand out the checks and his guys would race to the bank because they knew that only the first 20 or 30 would be good. Don’t ever be that guy.

Your reputation, good or bad, travels with you throughout your career. It would be in your best interest to always maintain the highest possible level of honesty and credibility. You’d be surprised at how it opens up the world to you.

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