Many businesses fail every year in America because they do not manage their cash flow appropriately. This has nothing to do with whether the business is profitable or not because profits do not equal Cash. It is possible to sell your product for a profit but then finance the purchase, meaning that you are a profitable business but your cash position is not equal to your profitability until the account recievable is paid off. When Accounts Recievables get too high, the result is that the business can not pay for new inventory, pay for new equipment, pay for fixed expenses and so forth.
So where can you find some cash laying around in your business? Here are some areas to look:
- Sales and Marketing:
Track your marketing initiatives and stop those that are not providing a higher return than what you are spending on them.
Negotiate favorable terms up front
Charge late payment penalties and provide rewards for early payments
- Accounts Recievable:
Have minimum amount for credit purchases
Update and track 30/60/90 day late pays with proven collection strategies
Look into purchasing credit insurance
- Accounts Payable:
Pay your bills on time but not before due dates. This avoids late payment fees while keeping cash in your hands as long as possible
Pay cash for big ticket items. Don’t assume revolving debts.
- General Rules:
Review your financial statements at least monthly (Budgets, Cash Flow, Profit & Loss, and Balance Sheet)
Split cash management responsibilities between people. Deposits by person A and reconciliation by person B
Establish an adequate Line of Credit with your financial institution before you need it.
These are some general rules to live by in Cash Flow management. There are more detailed rules to consider, too. Mastering these will get you well on your way to a strong cash position in your business.
Other resources to this issue are:
How Healthy is Your Business – Business Health Check
Cash Flow Pamphlet
14 Most Common Business Owner Frustrations & How to Fix Them.
8 Biggest Sales Mistakes Small Business’ Make and How to Fix Them
To schedule a 30 minute complimentary call with Roger, visit this site and pick a time, slots are limited: https://my.timedriver.com/67LS1
Roger Hawk is the host of “Hawk’s Eye On Business: KBOI News Talk AM670” and has been coaching, teaching & consulting Businesses for over 18 years. He’s been seen in Who’s Who, Virginia Tech’s Scholar Library, Eagle informer and various social media forums. He serves on Eagle’s transportation committee, and has created numerous support tools to help Business Owners become financially successful.