The Conscious Legal Corner answers questions about the law for social enterprises and conscious businesses. Here’s the latest:
Q: My company has big sales, and we are overall positive and profitable in the millions. But sometimes we still have cash flow issues. I am worried about being seen as fiscally irresponsible or a bad credit risk. Maybe my vendors could even sue us for breach of contract or send us to collections. What can we do?
A: I was in Boulder, Colorado, recently, so I asked local lawyers to take a crack at answering some of the pending questions. This one was answered by Melissa Johnson Hopkins, J.D., general manager of VeloDyne, a manufacturer of material process and conveyance systems.
Communication can help you avoid big trouble.
Melissa Johnson Hopkins: This can be a challenging situation for any business, but it’s common in construction, manufacturing, and other industries with seasonal sales — or when unforeseen circumstances arise from time to time. We’ve faced this issue more than once at Velocity Dynamics (“VeloDyne”), where 90 percent of our clients are municipalities. This means we always get paid, which is excellent for business, but payment can be painfully slow and often not quick enough to keep cash flowing in when we need it most.
It’s easy to see how cash flow can be impacted by moving parts, so when the timeline of a project gets off track and cash flow takes a hit, there are always choices to be made about how to handle our obligations and promises. As general manager, I am fortunate to work with a team that values conscious communication. Our management team spends a lot of time forecasting and checking in with each other to do our best to stay on track and meet our contractual and financial obligations, while looking for ways to keep our overhead and expenses in line with our budget.
We communicate with our clients and vendors to ensure that we are keeping them informed of any possible delays in payments or completion of projects. When we hit cash flow slumps, we are proactive in reaching out to our stakeholders rather than missing deadlines or payment dates and hiding from their phone calls. Instead, we strive to set realistic expectations and make our stakeholders part of our process.
Conscious leadership breeds conscious communication.
We’ve learned from the best. Our president, CEO, and owner, Paul Plache, has more than 30 years as an entrepreneur in the industry, and he works tirelessly to honor our business and stakeholders and to encourage our employees to be “A” players who continually move from good to great.
When things get off course, he is the first to pick up the phone or sit face-to-face and have those difficult but crucial conversations with our stakeholders. The result has been incredible: Our vendors have been loyal and steadfast in working with us on payments and finding solutions when circumstances demand. We have, in turn, worked diligently with our clients when payments are slow coming in. Litigation has not been a necessary part of our business, because we have an amazing team committed to our vision and mission.
It wouldn’t be a good legal column without a disclaimer! Here it is: we get insights from experts that can help you understand the law, but the Conscious Legal Corner isn’t legal advice. For legal advice, talk to a lawyer about your unique situation.