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July 12, 2014

Score: Learn the ins and outs of cash flow

TERRE HAUTE — You often hear about motorists who suffer breakdowns in the worst possible places because they didn’t bother to check their oil level regularly or ignored their dashboard warning lights.

Many small business owners do the same thing when it comes to managing their cash flow. When they don’t make regular checks and forecasts, or ignore troubling trends, their businesses will break down because they don’t have the resources to pay their bills. And there is never a “good” time for that to happen.

That’s why good cash flow management is one of the cardinal rules of small business ownership. And it’s so simple: Make sure more cash enters the business than goes out and that there’s always enough on hand to meet obligations like expenses, payroll and taxes on time.

Several strategies are available to influence both sides of the cash flow equation. To boost inflows, consider asking customers for all or a substantial portion of their payment up-front, or give discounts to those who pay promptly.

Even with their merchant fees, credit cards are a great way to bring in cash immediately when the product or service is purchased.

It may also be feasible to offer pre-paid gift cards, a business-specific cousin of bank debit cards: The customer gives you the money first, then gradually makes purchases until the card is used up or “recharged” with additional cash. Many small businesses offer this service using paper and/or computer records; no plastic necessary.

As for outflows, an operating budget is an ideal way to plan and track specific dates for recurring expenses. Avoid overspending on certain categories unless absolutely necessary. That way, you’re never surprised when a bill arrives.

Other tactics for keeping cash in the business include maintaining low inventories, leasing certain kinds of equipment instead of buying it outright, recycling and reusing supplies where possible, and evaluating processes and procedures to make sure they’re as efficient and cost-effective as possible.

If you have employees, their front-line perspective is a great source of insights and ideas for doing things better.

Perhaps the most important cash management tools are awareness and planning. Regularly monitoring your small business’s sources and uses of cash will enable you to spot trends to capitalize on and problems that can be avoided.

Identifying these patterns will also help you project anticipated revenues and expenses three, six, and twelve months in advance.

With this information, you’ll know when inflows and outflows are more likely to go out of balance, and prepare accordingly.

Score

• To contact the Greater Wabash Valley SCORE office, call 812-298-2452 or email scorechapter661@aol.com.

• For more information, visit greaterwabashvalley.score.org/

or facebook.com/SCOREWabash Valley.

 

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