Cash Flow

Better cash management can increase the success of any company. If a firm is cash rich, it can grow revenue through timely investments. If a firm is cash poor, it can help reduce the need for loans and interest expense. While growing the bottom line may be your objective, improving cash flow will help get you there.

Keep cash flowing to your advantage

Effective cash flow management begins with the right policies and procedures for accounts receivable and accounts payable. You can learn about these in the article “Collecting Your Cash” found at www.getgrowingforbusiness.com . It offers tips and advice on collecting money and managing disbursements. Once you have these in hand, it’s time to uncover the information buried in your accounts and plan for future cash requirements and surpluses.

Understand your cash position

Most accounting software has cash flow analysis functionality that can generate reports on income and disbursements on a weekly, monthly, quarterly and annual basis. These reports can reveal patterns in your cash flow. Do you have a surplus of funds in the middle of the month and a shortage at the end? Does your cash flow fluctuate seasonally? Use this history to create a cash flow forecast.

Your cash flow forecast is not a static document. You may face a new competitor, the market may change or your costs may rise unexpectedly. Keep your accounting records up to date and generate cash flow reports frequently to see the impact of such changes. Then update your forecast. If you’re planning for growth, integrate new expenses and revenue into your cash flow forecast to see the impact on your financial picture. Whether for better or worse, knowing any change in projected cash flow early will give you time to adapt and strategize.

Invest unused cash

Money should always be at work, whether in the company or in investments. If your cash flow forecast shows surpluses, you will likely benefit from an investment plan. You may want to manage the plan yourself; however, you can also put systems in place so that your money is invested according to your plan without distracting you from your core business.

Plan for cash shortages early

The bank and investors always prefer to support a proactive company than a reactive one. If your cash flow forecast shows that you will need an influx of cash, contact potential sources of loans or investment earlier rather than later.

Managing cash flow is an ongoing priority

With an understanding of your history, you may want to set goals to improve cash flow such as:

• Increase the number of accounts that pay within 30 days by a specific percentage
• Maintain a bank account balance within an established minimum/maximum range
• Negotiate better payment terms from suppliers

The impact of the changes you make to reach these goals will be revealed in your cash flow reports.

The repercussions of poorly managed cash range from lost revenue to business failure. Managing cash flow effectively is critical to your business. Your policies, procedures and strategies should be reviewed annually to spot opportunities for improvement.

Small Business Expert Roger Pierce is co-founder of www.BizLaunch.ca.