A Magazine about the Hudson Valley’s local economy, published by Hudson Valley Current.

The Hudson Valley Current

How you can manage your cash flow with Currents   
by Barbara Miller  
Managing cash flow is a major challenge for many small business owners. Insuring that there is sufficient cash on hand to meet expenses is an ongoing challenge. If cash is not available when it is needed most, businesses must rely on credit, and the relatively high fees currently being charged can be significant for many businesses. If your business is seasonal and does not always generate enough cash to cover expenses, or you would like to decrease your borrowing costs, you might consider how Currents can help. Here is how it works.
Members of the Current network of small business owners can sell their products and services in exchange for Currents, a virtual form of “currency”. Each Current is equivalent to one dollar. All transactions are recorded, and the use of Currents is legal. Members have a credit limit of 300 Currents. This means that a member’s net amount of deficit (sales less expenses) cannot exceed 300 Currents. On the other hand, a positive Current balance must not exceed 600 (this will increase after February 2014). In other words, a member cannot hold more than 600 Currents, nor have spent more than 300 at any point in time.
Let’s look at a hypothetical scenario. Jimmy owns a landscaping business. The majority of expenses are in the spring when he gears up for the season. However he collects most of his revenues during the summer. Thus his cash flow at the beginning of the season when he needs it most is insufficient, and he must resort to borrowing from a bank or using credit cards. However, now that he is a member of the Current network, he can utilize members’ services in exchange for Currents. First he turned to Bill, who performs maintenance and repairs on his lawn mowing equipment. Jimmy paid Bill’s fees, which are denominated in Currents. Also, Jimmy decided to use Currents to purchase beautiful lawn ornaments from Marie, knowing that some of his customers would love to have them in their garden and will buy them with US dollars. Then he paid Currents to Jules, a consultant who gave him advice on upgrading his billing and accounting systems. Finally he contacted the Shawangunk Journal, which accepted Currents for advertising his business.
But wait, there is more. With all of these expenditures, Jimmy starts getting close to his 300 Current deficit limit. He wondered if anyone would pay him in Currents for his services. As it turned out, Bill (the aforementioned mechanic) needed help with setting up his garden and agreed to pay Jimmy in Currents. He also agreed to let Jimmy have 60 days to pay for the equipment repairs because he built up plenty of Currents and didn’t mind waiting. Imagine, selling services for Currents on credit terms. As time goes on, we are likely to see very creative ways in which business owners can utilize their Currents to better manage their cash flows.
Once the season was underway, Jimmy started to accept more Currents for his landscaping services. Thus he increased his Current balance up to the 600 maximum limit. He then decided it was time to reduce his level of stress and to ease his sore muscles. So what did he do? First he paid Currents to Claudia for a deep tissue massage. Then he went to some local farmers and paid Currents for fresh produce, eggs and delicious apple cider. All of these purchases brought Jimmy’s Currents back into balance once again.
So let’s recap. Jimmy was able to prepare for the startup of his busy season without using anycash from his bank account. He therefore reduced interest costs. At the end of the season, he was able to enjoy some of the bounty provided in this region, again without using any cash. But how are Currents legal, and how did they impact his profit & loss statement, one might ask? At the end of the year, Jimmy received a Schedule 1099 to document the sales denominated in Currents. Moreover, he expensed all of the Currents he utilized to pay for services (as well as for the lawn ornaments), in the same way that dollar denominated expenses offset revenues. Jimmy’s bottom line for the year therefore was the total of his net profit both in terms of dollars and Currents.
On the balance sheet, the ending cash balance would include both dollars and Currents. Should members extend terms to customers for the payment of Currents, or should they receive Current terms for services provided, they might want to record on their balance sheet accounts receivable or payable denominated in Currents. Note that if there were a deficit in Currents, this should be recorded as a liability; if there were a positive balance, it would be recorded as a current asset.
Interested in learning more? Visit hudsonvalleycurrent.org and come to the next demonstration gathering at Sante Fe restaurant in Kingston, February 12, 5-7pm.