Friday, July 30, 2010

Bobbing and surfing

Ocean waves

A big difference between corporate and indie work is my exposure to waves.

There are highs and lows of workload, ebb and flow of  cash balances, rhythms of customer and supplier interest.  And, like journeying out onto the open ocean in a small boat, I now feel waves that previously passed unnoticed beneath the longer hull and stabilizing mechanisms of a billion-dollar company. 

Nimble footing and steely nerves can smooth out the oscillations (when I can muster them).  But, like the ocean surface, the interactions of various forces from many directions create a complicated surface, with occasional doldrums and rogue waves.

Workload variation is probably the easiest to cope with.  I’ve gotten better at recognizing periods of heightened demand and the risk of over-commitment.  Sometimes its as simple as blocking out a few days during and after a trip.  When the to-do list gets long, I close the door and block a week to whittle it to size. I put a priority on communicating progress and keeping promises.

And doldrums, such as the six-week summer holiday period, are a good opportunity to clear the lists and to make structural improvements to the business.  These include reviewing the business plan, re-tooling the web sites and brochures, training, prospecting new customers and suppliers, building the brand with publications and publicity.

Much harder is cash-flow variation.  This month, I got caught between suppliers who needed to be paid and customers who were slow sending money for completed jobs.  I keep a reserve, but it was barely sufficient as one-time bills hit from accountants, immigration, and lease car providers.  There’s a scramble to shift funds around to cover the short-term squeeze.

In the old days, companies would have a line of credit from their bank to smooth out rogue waves like these.  But with the financial industry retrenching, my options dwindle to reducing spending, add debt to credit cards, or defer non-essential payments.  Sadly, I take these on myself, delaying purchases and holding back my paycheck (but never high-interest debt).

The rule of thumb is that 10% of revenue can be used to pay off debt.  Thus every $1000 of debt requires $10,000 in income to pay off.  Knowing my future cash flows allows me to estimate how long it would take to pay off debt.  Generally, I stay very short, perhaps a month or two of payback time.  More complicated managerial accounting strategies have fixed costs that are too high for the benefit I’d get right now.

I’ve also begun to realize that I can’t extend floats to customers without thinking of these effects and building a ‘risk premium’ into my billing.  I’ve introduced a late payment penalty clause, and am charging more if the prospect of being paid is uncertain.

Laird Hamilton In uncertain times, I can bob in the waves or I can surf them.

Let me be ‘Laird…

No comments: