Just about a year ago I was able to start sharing real world experience here in “Small Business, Big Lessons.” Early on, I teased that I would eventually talk about the taxi business and what business they are really in. After keeping the loyal readers in suspense for all this time – I am prepared to answer. There is also a lesson in here for cash businesses. Below is a multiple choice quiz to see what you think and if I will change your mind:

Quiz – What business is the taxi cab company in?

  1. a)    Providing excellent transportation services to the customer
  2. b)    A dispatching service to match drivers with riders
  3. c)    A vehicle leasing and maintenance company
  4. d)    All of the above

Taxi drivers have taken a beating from Uber and Lyft but their intent is option “d,” while the primary business is “c” – most are primary a leasing and maintenance company. They include option “b” as a necessary component to support the leasing they offer independent drivers. We all hope option “a” is occurring, but that is also why cab companies are seeing increased competition. Let’s look at the rationale and if there anything you may want to consider in your business.

1)    Eliminate theft – In a business that depends on remote workers and cash, there is always exposure to theft. What happens if you no longer need to worry about the meter running or cash payments?  You have removed one of the biggest challenges in a business that would normally have low margin and high risk

2)    Consistent revenue stream – For the taxi company to work, it has to have a predictable revenue stream and can be paid weekly for leases. Often several independent drivers pool their money to purchase the rights to operate a single vehicle for all shifts. Regardless of how busy the driver is – the taxi company gets paid for the vehicle. The risk has been moved to the driver but they also has the upside opportunity if run efficiently and at capacity.

3)    Limited liability – Regardless of seasonality or other short term conditions, the taxi company will make money. Drivers are typically independent contractors required to carry insurance to cover the taxi company as additionally insured.  This does not make them immune to downturns or corporate liability but does buy them time and provide a buffer.

This is an interesting business model and to look at ways to create a win/win for all in a primarily “cash” business. It provides one way to reduce risk in a cash business that is run off-site. The additional impact is a revolving workforce. By being tied to a lease, there is additional incentive for the driver to be profitable and lower traditional turnover. One other possibility is what airline have done – move to 100% credit card payments for on board purchases. The trade-off being higher expenses with credit card transaction fees.

Tell me about your experience managing a cash business with similar parameters. Small business – keep the cash flowing and growing!