Preface: Remember the lyrics, monitor your business cash flows carefully, budget conservatively, and save it.

 

Cash Management

 

A strong balance sheet should always begin with cash and cash equivalents. Although account groupings for financial statement purposes may often combine all cash accounts into one sum, knowing the forecast and planned allocation of your cash accounts as an entrepreneur, should be considered a high priority.

 

Cash is the money at your fingertips – it’s what you can write a check to vendors with; or wire funds for payment. Cash is not income, and cash is not sales. Income is the amount of money you plan to earn with time, and doesn’t necessarily translate immediately into cash.

 

One of the leading problems facing companies, even profitable companies, is the need for cash. After cumulative financial quarters, in the long term, income and cash flow merge, but the crucial difference is timing. For managing your business in a lagging economic or lagging industry conditions, the three key areas to keep income trends rising are to 1) develop customers and clients, 2) curtail expenses, and 3) increase gross and net income margins.

 

Accounts Receivable Credit

 

Supervising your customer credit history and your credit policies will assist your business in “flagging” customers who pay late and burden your cash management. If you continue to do business with customers who maintain delinquent credit histories, don’t overextend yourself and your accounts receivable balance with slow payers; or you may risk a cash emergency with an avoidable expense – bad debts.

 

Invoicing and Payroll

 

Platinum rule one of business is 1). invoice promptly and 2). incentivize prompt payment. Don’t give your customer the opportunity to think you don’t want paid by delaying invoicing. If you can, be proactive and invoice beforehand; that’s what’s an estimate is for.

 

Platinum rule two. Never pay payroll taxes late. Defer accounts payable, reduce advertising expense, or draw on a line of credit before paying payroll taxes late. Payroll taxes must be paid; and a deferral of payroll tax payments can be avoided with proper planning. Penalties and interest are much more costly than interest on a loan. Borrow from a bank, and not the federal or state treasury. Budget your cash flow and pay payroll taxes timely.

 

Cash Inflow and Outflow

 

Remember, money is never as easy to earn as it is to spend. Monitor your cash flow carefully, budget, and save. Negotiate, but always politely. If you need cash, offer a discount to incentivize payments on accounts receivable.

 

Should your business be in difficult straights, you may consider negotiating your accounts payable by contacting vendors and requesting a discount. They are not impervious to economic conditions and may renegotiate invoices for prompt payment. Maybe even your landlord will renegotiate a lower lease if you communicate to him the cost of a vacant property in an economic recession.

 

Employ your cash

 

In summary: monitor, analyze, and adjust your business cash flows as your business develops and avoid gaps in cash inflow and outflow with proper planning. This will make managing your business less stressful. Yet, beware that ample cash and cash flow is not the only resource you should focus on as a manager. Employee talent and skills are what develop and build that cash resource. Reinvest appropriately in this key resource with your excess cash. Employ coaches to educate you, your trustworthy managers, and employees, to better assist them in assisting you to continually improve, strengthen and build your business asset.