Cash Flow Tips To Keep Your Business in the Black
Even a perfectly healthy company may face financial problems if it
doesn’t have enough cash in the bank when the bills are due. According to
the Iowa Society of Certified Public Accountants, there are several steps
that business owners can take to ensure reliable cash flow.
Start by budgeting
Company leaders should keep abreast of trends in their monthly sales and
expenses, how well clients are paying, and what credit issues the business
faces. Creating a realistic operating budget is a great first step to
maintain a sense of the health of your business. Begin by finding out how
much cash you have in the bank today, then estimate how much you will
receive from customers and other sources in the coming month. Once you’ve
totaled these numbers, subtract your projected expenses, including not only
fixed costs, such as salaries and rent, but also variable items, such as
supplies.
Check the cash situation
In examining your budget, determine first whether you will have enough cash
to cover your costs during the month. If you won’t, consider how you will
pay your bills and what this deficit says about your business. Is it due to
a one-time surge in costs or an indication of ongoing problems?
Spot the trends
If you do have enough to cover your expenses, the next question is how your
ending amount compares with your starting balance. If the final amount is
higher or lower than the beginning figure, consider what that change says
about your business. If you will end the month with less cash, does that
mean that expenses are creeping higher? If your cash figure will be higher
at the end of the month, how should you use those extra funds? When you
understand the trends in your company’s financial situation, you can make
timely adjustments for unexpected costs, a decline in revenues, or greater
demand for your products.
Keep the dollars flowing
In addition to maintaining up-to-date budgets, there are also some practical
day-to-day ways to improve your cash flow. Companies don’t get paid for the
goods and services they deliver until they bill for them, so make sure your
invoices are sent out on a timely basis. In addition, your business should
have a system to keep track of outstanding invoices and to contact customers
who are behind on their payments. And when you take on a long-term project,
negotiate an agreement with regular monthly payments to be made during the
job, instead of waiting until the end of the project to receive your entire
fee.
Of course, you won’t be able to take advantage of the payments you get
until they’re in the bank and accessible. Ask about your bank’s policy on
when the funds from deposited checks become available to you. If you have to
wait several days to make use of your money, ask for a shorter “float”
period for your deposits.
Use your judgment
Sometimes business owners do an excellent job of managing their cash flow,
but they face problems because their customers don’t pay their bills on
time. One way to cut down on outstanding debts is to know whom you’re
dealing with from the start. Check your customers’ credit references and
speak with other suppliers who have done business with them.
Your CPA can offer the financial expertise to keep your business running
smoothly on a day-to-day basis and help you understand your cash needs and
how to make sure they are met.
Access “Find a CPA.”
