The Business of Independent Service Provider Contracting

How can one the most attractive elements of FXG contracting be the most detrimental to it as well?

Current economic conditions are uncovering some of the large stumps that have been covered by high tides for many years. 

Business as usual used to consist of volume growth, turnover & recruiting challenges. 

Volume growth meant revenue growth, and this growth usually meant a steady or rising checkbook balance that could be relied upon to make payroll and other bills. Revenue growth also covered up deteriorating productivity and dare we use the term “efficiency”.

Now, growth, at least until FDX unlocks more of the upcoming plan (which we'll be addressing in detail, stay tuned, much more to come on this), is now not there to keep the boat from hitting the stumps.

Cashflow - The Good News

It is well known that the thing that can and does destroy most businesses is inconsistent or the lack of adequate cash flow.

Cash flow can be defined as the total amount of money being transferred into and out of a business, especially as affecting liquidity. 

When outside investors evaluate a FXG Ground-based transportation company acquisition opportunity, one of the most alluring characteristics is the consistent, dependable cash flow. An experienced business person knows (or thinks) they can take dependable, and relatively immediate, cash flow, and run a successful business from it.

In most  other business opportunities, managing accounts receivable & cash flow are among the biggest problems you can have. Imagine operating at today’s margins, and then having to wait for your settlement check with an uncertain delivery date. 

In many cases, having to chase accounts receivable with very tight margins, like in the rest of the transportation industry, would shut the door on a lot of operations. This is why factoring exists in the larger industry.

Consistent cash flow is arguably the most valuable thing that your business possesses. 

Steady cash flow can be used to plan your operations, your expenses, and your life. 

With consistent weekly deposits from FXG,  you don’t  lose sleep over whether or not you’ll get a check in the mail from a shipper. The only question that may arise is how much will the deposit be for. For those of you that have owned and have had to make payroll in other businesses, you know exactly what we are talking about.

Solid, dependable cash flow is golden when it comes to being able to plan and pay your bills.

Cashflow - The Bad News 

Steady, predictable cash flow can, believe it or not, cause problems, the most important of which is “getting used” to the cash flowing in every Friday. 

How can this good thing be bad? Well, thinking that you have enough cash to make payroll and pay bills allows your attention to be shifted away from focusing on your margins. If you think there will be money in your checking account to make payroll, then you will naturally turn your attention to what are seemingly bigger problems, such as service.

Then, while you were not looking, compressed margins cause a lack of cash in the checkbook to pay bills or worse, make payroll at any given time. 

The same consistent, dependable cash flow that makes this biz so attractive can cause problems that most don’t see until it’s too late.

If dependable cash flow is like an addictive drug, and it is, it can be painful to kick the habit of taking it for granted. The steady stream of cash that keeps your checkbook full hides a lot of stumps. It is not until that stream slows down that your boat starts hitting all the obstacles in the water. 

Cashflow - The Ugly

It has been shocking to observe from our corner of the universe, how little is known about what happens when perpetual revenue growth is removed from the contracting operational and financial formula.

Being a CSP or TSP has always been challenging. But, negotiating the challenges has always been made easier in a growing revenue environment.  For example, the usual problem has been trying to figure out when to add a route, not how to cut one out.

Make no mistake, today’s business environment and the one from just a year and a half ago are completely different.

The magic incoming cash flow is still there. It’s just that it’s less (thank you recession). In most all our client situations, normal cash flow levels are stagnant to retreating.

This is creating shortfalls in operating budgets and decreasing checkbook balances to the extent that making payrolls and paying bills is a challenge, now demanding complete attention. Many want to turn to FXG for relief, but based on actions the company is taking, it does not appear that they will be doling out any type of financial methadone anytime soon.

It’s ugly out there and may be getting worse.

The only way to kick the Cash Flow habit is to be keenly aware of key operating and financial metrics like stops and revenue per dispatch, both of which are now offered on a daily basis via text and email as part of the new features of the upcoming eTruckBiz Business Operations Support System (B.O.S.S.).

Once the underlying revenue generating numbers are known and followed, then efforts to correct the expense situation naturally occur. Given the severity of the situation, it’s never been more important to have a firm grasp on the rudder of your boat, so you can steer clear of the stumps.