Utah Business Networking

In today’s current economy, whether you believe we have bottomed out in a recession and are now starting to move into recovery or you believe that a recession is still in full effect, managing your business’ cash flow is by far one of the most important factors that must be considered every day. It has become quite difficult for small business owners to get a loan from traditional lending sources. Even your wealthy uncle or grandpa are not so quick to lend you the additional cash to make payroll or pay your taxes.

So what can you do? Manage your cash flow. In theory this is a simple equation. Collect cash (receivables) as fast as possible and hold off making payments until the due date. Perhaps you are already doing that. Now you need to ask yourself, “What can I do to extend my cash flow cycle?” Here are a few tips:

• Talk to your vendors and see if you can change your terms. A few extra days can help ensure that there is enough cash to take advantage of your trade discount and not overdraw your bank account.
• Review the terms you have with your customers. Is there any room for you to shorten your terms? If so, make adjustments as you see fit.
• Analyze each new customer to determine their ability to pay. If you question their ability, maybe cash on delivery is the best option until a rapport is established.
• Spend the time and energy to collect on your receivables. Click here for an article that provides more tips on collections.
• Manage the float. Float is the time that it takes for mailing, processing, and clearing of checks of a related payment.
• Consider the use of a lock-box system. This can provide for a more timely deposit of receipts.
• Review your cash position at the beginning and end of each day along with your receivables and payables. Prioritize who needs to be paid, where you can take advantage of trade discounts, which customers are over their terms, and outline the tasks you need to take to collect and make payments.

As an outsourced controller and consultant for small businesses, one of the first items I look at is the cash position of a company. There is nothing more wasteful then spending hundreds of dollars in bank overdraft fees. If you are struggling with cash flow, taking the time to better manage the cycle. The money you are spending for bank fees could be used to help pay down accounts payable, taxes, or even take a draw for yourself. Remember the equation and review your specific circumstances everyday.

Written by: Charles D. McKenrick – CDM Accounting & Bookkeeping – www.CDMAccounting.com

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