Managing Cash Flow Problems

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A diagram of the company cash cycle from first...

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Are you having problems managing your business’s cash flow? Short of borrowing money, which I do not recommend, what can you do to improve your company’s cash position? Here’s some suggestions.

You can regain control of your financial situation by examining several areas of your business. The first area to look at is purchasing. You can conserve cash by buying smaller quantities of supplies more frequently instead of buying them all at once. The best time to buy in bulk is if a significant discount is offered. And when it comes to payment, negotiate with your vendors to get the best possible terms. You should pay early if offered a price break for prompt payment; otherwise, bills should be paid on time.

You can put the same concept to work with your customers by offering a discount for paying invoices early. If a payment is late, though, consider charging an extra percentage on the invoice. Billing customers immediately after your company ships merchandise may help speed up cash receipts. Also, any customers who regularly make late payments should be switched to COD.

Another area to look at is inventory. You should attempt to return slow-moving inventory or mark it down so that it will sell. You can avoid overstocking new purchases by carefully planning the quantities that need to be kept on hand.

A review of operating expenses can help you find ways to cut costs on overhead items, such as insurance and telephone and Internet service. To reduce taxes, consider making any equipment purchases before year-end if your business will be able to write off the cost on the current year’s tax return.

Good cash management is essential to business prosperity. If you would like to learn more about developing or improving your financial management system or discussing how the CommonSense System of financial management can improve your cash management, email me at info@commonsensecfo.com or call Kirk at 402-658-7340.

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