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How a Cash Management CFO Handles Customer Price Increases

As a cash management CFO (one focused on managing cash as tightly as possible), I found the article written by Norm Brodsky in response to a question from an entrepreneur intriguing. I’ve heard similar issues. I once had a prospective client who ran a medical transportation company and had an 8-figure contract with the Veteran’s Administration. However, he had not included any cost increases in his contract and his firm was hemorraghing cash. He was using another profitable company to fund all the losses in this profitable one.

Increasing_chart

We told him he had to immediately renegotiate the contract. Any self respecting cash management CFO would have said the same thing. The government wanted a reliable entity. If he suddenly went belly up after servicing the government 2.5 years into the 5 year contract (and apparently, doing an excellent job), the VA would be in the unenviable position of having to find an alternate with no notice. For him, the situation would be worse. He would have lost millions over the years and now be unable to get another government contract as a significant shareholder of any entity doing business with the government. The same thing Norm stated in his advice applies here. Per Mr. Brodsky, “he could avoid such problems by inserting a simple clause in his customer contracts that would allow him to increase the price if his material costs rose.”

If you have a contract that’s underwater (losing money), re-negotiate ASAP! If you are considering entering into a contract that has a fixed price based on variable material costs, including gasoline if you are a transportation or related entity, then, as above, PLEASE insert the clause about increasing prices when material costs rise. Just some friendly advice from a cash management cfo.

Read Norm Brodsky’s Inc. article.

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About Tiffany C. Wright

Hi! I,Tiffany C. Wright, am the author of the ebook, "Help! I Need Money for My Business Now!!" and the book "Solving the Capital Equation: Financing Solutions for Small Businesses", available on Amazon. I am the president of Toca Family Business Services, a short-term & project-based interim management & strategic and financial advisory firm, located in Atlanta, Georgia. In the past five years I've helped small and medium companies restructure and obtain over $31 Million in financing and a similar amount in purchase orders and contracts. I have an MBA in Finance and Entrepreneurial Management from the Wharton School of Business at the University of Pennsylvania and a B.S. in Industrial and Systems Engineering from The Ohio State University. Personal: I enjoy investing. I am a prodigious reader of everything from business books, magazines, and newspapers to horror and popular fiction. I read 4-6 books per month. I also love to travel. I've been to 33 countries on 5 continents and lived in Japan for 2.5 years and aim for a foreign locale twice a year. I am also an athlete and run track on the Master's Circuit. The highlight was placing 7th in my age group in the 2007 World Master's Track and Field Championships in Italy.

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The Resourceful CEO, Tiffany C. Wright

the president of Toca Family Business Services, a strategic and financial advisory firm which provides short-term & project-based C-level management. She is the author of Solving the Financial Equation: Financing Solutions for Small Businesses, available on Amazon.

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