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Take steps to ensure more money comes in than leaves account
Published on Monday, Apr 28, 2008
Just as watching your blood pressure is important to your health, monitoring cash flow regularly is vital to your business health.
Minor ''hiccups'' might be expected. However, they also can be an early warning of bigger, potentially chronic problems ahead, especially if other indicators, such as sales, seem positive.
Monitoring and predicting cash flow is a matter of consistently following some simple, common sense financial management practices.
The objective is to make certain that more cash enters your business than exits your bank account. First, you need to translate sales into real money as quickly as possible. Once you have collected the cash, your business needs to guard it. Surprises, such as slow or non-paying customers and unexpected expenses, are your worst cash flow enemies.
One way to shift cash your way is to ask for all or a portion of payment up front. Asking for at least a deposit in advance is a good way to jump-start your cash flow. If you establish the policy fairly and properly, it shouldn't alienate customers. Be aware of your competition and the industry you are in or this practice could drive customers away and make you noncompetitive.
Accepting credit card payments also can help. Sign up for a merchant account that allows you to do this. Or, if you already have one, encourage customers to use this option more often. While paying a fee for this (usually small), credit cards are a great way to speed cash into your account.
You might need to manage ''receivables'' more closely. This is the money that customers owe you for products or services you have delivered. Create a detailed ''aging'' schedule of what you are owed, by whom and for how long.
Place phone calls to overdue accounts, focusing first on the largest amounts due. Offering a discount can bring in some quick cash, but play this card only after you have called the customer for full payment.
In this time of rising prices for commodities and supplies, make sure that you keep track of vendor pricing to you and adjust your prices accordingly.
Getting caught in the squeeze between suppliers and customers can quickly bankrupt you.
Update your business plan to be sure it reflects the realities of the business and related cash flow.
Finally, don't overlook the power of an operating budget. Note specific due dates for payables as well as receivables. Use it regularly to get a snapshot of your cash flow status. With that information, you will be better able to make short- and long-term plans, spot potential problems and avoid a potentially crippling cash crisis.
If you would like more information on this or other business-related subjects, contact Akron SCORE via the Internet at http://akronscore.org or by calling 330-379-3163. Services are free and confidential. SCORE is a resource partner of the U.S. Small Business Administration.
Just as watching your blood pressure is important to your health, monitoring cash flow regularly is vital to your business health.
Get the full article here.
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