Mind Your Business

Q: We have a general contracting and plumbing business. We are starting to win some huge commercial jobs but are facing cash flow problems in paying our suppliers. We don't get paid by our clients until the job is complete, usually 90 to 160 days from when we start. But our suppliers want their money in 45 days. Any suggestions? -- Troubled in Texas

A:You may feel uniquely harried, but cash flow is a common problem for many small businesses and particularly for contractors.

The good news is that there is also a common solution -- a line of credit from a bank.

A line of credit is different from a traditional term loan in that you only draw out and pay interest on money as you need it. So you could get approval for a $200,000 line of credit but not touch any of it immediately. Then three weeks later you might use $50,000 of it to pay suppliers, and two months after that you might draw out an additional $40,000 to pay further bills.

Start by talking to your bank, but also shop around for the best rates. You'll probably have to guarantee the loan personally, but banks may also consider those large commercial contracts you're starting to win.

"With construction companies in particular, banks can be more flexible if they see signed contracts, as long as the company is generally healthy and profitable from a balance sheet perspective," said Vicki Suiter, a small-business consultant with Suiter Financial Systems in Novato.

Be sure to analyze your cash flow before embarking on each big new project. Banks are more likely to say yes if you approach them well in advance, as opposed to showing up suddenly in crisis mode.

"Do a cash-flow forecast before the project starts so you can make sure you have enough credit," said Ted Hilliard, a consultant with Hilliard Management Group in Oakland. "As a contractor, you should have at least as much credit as the whole project. So if you have a $500,000 project, make sure you have a $500,000 line of credit."

Meanwhile, try negotiating for longer or more flexible payment terms from your suppliers. Like banks, suppliers will respond better if you approach them in advance, before you place your order, rather than when bills are due.

"Make sure you're speaking with the right person and have a payment plan," Suiter said. "Don't just say, 'We'll pay you when we get paid.' "

Your story points up the critical importance of cash flow to the success of any business.

"What separates successful contractors from others is their credit availability to take on these big projects," said Hilliard. "I've heard so many horror stories where people get the biggest contract of their life but then face delays beyond their control. I've seen contractors go bankrupt because they were not able to pay their employees or unions or creditors."

Q:I bought a company that makes a fairly unusual kind of fabric product. Our products are manufactured by an outside contractor using a heavy-duty sewing machine. I'm concerned that we are so dependent on this one contractor and am looking for other options. How can I find someone to do this kind of work? I don't want to send the work overseas since my customers appreciate our "Made in the USA" label. -- Baffled in the Bay Area

A:Ten years ago, you would have had an easier time finding sewing contractors in the Bay Area. But cheaper overseas competition has basically decimated the local contracting industry. There's not even a garment contractors' association in San Francisco anymore.

"A lot of Bay Area design companies are alive and well, but they're producing in Southern California," said Frances Harder, founder of Fashion Business Inc., a nonprofit group in Los Angeles that provides support for fashion entrepreneurs.

Harder recommends getting in touch with contractor groups in Southern California such as the Garment Contracting Association () or the Korean Apparel Manufacturers Association (). Or look for contractors in industry publications like Apparel News.

Also check out the monthly networking meetings for fashion entrepreneurs at the Renaissance Entrepreneurship Center in San Francisco, co-sponsored by Harder's group. The next one is on Monday. "It's a great way to cross-pollinate and get information,' Harder said. Call the Renaissance Center at (415) 541-8580.

Q:The company I work for eliminated the employer match for our 401(k) plan this year after honoring it for about seven years. And my friend's company recently started a 401(k) plan without an employer match. Is there a standard amount or percentage that employers should match? -- Irritated in Oakland

A: About half of Americans work at companies that offer a 401(k) or similar plan allowing employees to set aside pretax dollars for retirement, according to a 2006 study by the Employee Benefit Research Institute.

But large employers are more likely than small ones to match their workers' contributions in some manner.

The most common formula is a 50-cent company contribution for every $1 put in by an employee, up to 6 percent of his or her salary. About one third of all plans use that 50-cents-on-the-dollar formula, according to a study by the Profit Sharing Council of America.

Why do companies choose to match their workers' 401(k) contributions? There are both selfless and self-interested motives.

-- Selfless: Companies want to help their employees prepare for a secure retirement.

-- Self-interested: Federal tax law allows highly compensated people such as owners to put more pretax money away if their 401(k) has high participation from lower-paid staff.

In both cases an employer match is a great incentive for workers to put their own funds into a 401(k).

There's one other reason for an employer match -- recruitment. A strong benefits package can help attract and retain top employees. And in some industries, a 401(k) with an employer match has become a standard benefit.

Byron Hancock, a benefits consultant with Hancock Sifling in San Francisco, won't even set up a 401(k) plan for a client unless it includes an employer match. It can be as small as 10 cents for every $1 that an employee contributes, he says -- but it's got to be something.

"An employer match can increase employee participation enough to justify the cost of setting up a plan," Hancock said. "If an employer doesn't put in a match, the plan won't be as valuable to the employer and group, and it is harder to justify the expense."

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