by Michael Lodge
Every small business is always concerned about the cash flow of their operations. There are many issues that a business owner needs to look at, and one issue is working with their accounting department or accountant to find ways to increase cash flows every month.
Here are some steps to use in working smartly in increasing cash flow.
ORGANIZE YOUR BILLING SCHEDULE – receivables have to turn over faster, vital to have more capital in purchasing new products or materials, or growing your business. Work with your accountant or accounting department in finding ways to speed up cash flows, look at the reports being generated out of your receivable reports. Look at the age of all accounts receivable on your clients – look at 30 days old, 30 – 59 days old, the 60 – 90 days, etc. This kind of review and flagging system helps you to act immediately on overdue accounts. Collect the cash.
STRETCH OUT YOUR PAYABLE’S– Take the maximum time give you on the vendor invoice (often 60 – 90 days) to pay the invoice. Think of the terms as an interest-free line of credit, but if you can pay it on time with a solid cash flow do so. But if not manage your cash by using the terms available.
PAYMENT INCENTIVES – If you have a vendor that offers you a discount if you pay quickly, take it. In the long-term it will save you a lot of money. If they don’t offer a discount for paying early – ask them.
CHECK YOUR SERVICE OR PRODUCT PRICING – Make sure your pricing has kept up with the trend in your industry. Sometimes small business hesitates to increase their prices because they are afraid of loosing their clients. Customers expect their suppliers and service firms to institute small regular price hikes. Look at what your competition is doing. Make sure that your pricing is covering all of the general and administrative expenses as well as making a profit. If you’re not covering your expenses then something is wrong with your pricing.
SPREAD OUT YOUR PURCHASE POWER – Most businesses can save money by splitting out their business between various suppliers. Take time to review where you need to pay for added service, and where you can save money through paying commodity prices. Example, you want to purchase a computer hardware from a value-added re-seller who can help you choose the right system you needs and meet your requirements. You can purchase other items for that computer system to meet your business overall needs, while you can purchase other items from an online service. To make sure you are paying competitive rates compare prices of typical office materials, equipment and items to make your company run. Price checks are needed to bring better cash flow.
LOOK AT YOUR EMPLOYEE HOURS – There are several employees that may not need to work a full week. You may be able to put them on three-day or four-day work weeks based on the need of the office. In every business the biggest expense is always payroll. If you man minimize work hours for those that are not needed full-time until the business grows then cut hours. Also, when looking at employees make sure you look at who is bringing value to the company and who is not. If they are not adding value, helping the company work better, or bringing in revenue, look at their hours and perhaps you can save some cash out.
Many times I have written about understanding your financial statements. It is vital to know how to look at each line of income and expense, what you can eliminate and what you add as value. Take some time, sit down with your accountant, increase your cash flow by understanding where all of your income and expenses come from. Take some time, make some coffee, and start reading your financial statements and focus on improving your cash flow.
For help call our office at 877.778.1770 and let us help you through the process.