Are you a fireman or a business manager?
In your business are you constantly putting out fires caused by cash shortages? How well you manage your cash flow affects your business's profitability and longevity. Here are a few "fire prevention" suggestions.
* Create a cash flow projection. A cash flow forecast should be one of the quarterly reports prepared in every small business. It consists of your beginning cash balance plus your expected receipts minus your expected disbursements. A forecast allows you to anticipate cash shortfalls in order to give you time to carefully consider all your financing options.
* Collect your money as fast as possible. Send invoices as soon as you ship goods instead of billing at the end of the month. Your invoices should clearly show the payment due date and any penalty for late payment.
* Follow up on delinquent receivables. The longer an account remains unpaid, the greater the chances are that you'll never see your money. Once an account becomes delinquent, make no more credit sales to that customer until the account is brought up to date.
* Postpone paying your bills. Take early payment discounts when it makes sense, but otherwise use the full grace period to pay your bills. You might want to pay early to key suppliers.
* Don't let inventory build up. If your inventory includes slow-selling and high-cost items, consider making them special order items. Get rid of obsolete inventory to free up cash and valuable shelf space.
* Track your expenses. At least once a month, compare your spending with your budget. If you are spending more than you planned, it's a good indicator that you may need to take corrective action.
* Establish a lifeline of credit. Set up a line of credit before you need it. It takes time to secure a loan from a bank, and it may be more expensive and difficult to obtain credit when you really need it.
For a review of your company's cash management plan or for help in establishing one for your business, give us a call.
Before you invest in any business, it's always a good idea to discuss the proposed venture with your advisors. If you would like assistance with evaluating a business opportunity or with legitimate tax planning, please call our office.