"Cash flow is a significant issue for any business but it's an especially critical factor for small businesses, because when cash flow is insufficient it can cause a business to cease operation even though the business may be viable and profitable," contends Max Summers, director of the Missouri Small Business Development Centers (MO SBDC), part of the University of Missouri's statewide Extension program.
Consider the following pointers to improve cash flow for your small business:
* Practice timely billing - Send bills immediately following delivery of goods or services; don't wait for a 30-day billing cycle to charge customers.
* Speed up receipts - Give your customers incentives (or disincentives) to encourage quick payment of bills. Offer discounts for early payers or penalties for late payers or a
combination of both.
* Terms can trump price - Take care to negotiate the best payment terms possible with vendors. Frequently the cash-flow value of better payment terms can exceed the savings
value of lower prices. "Arrange for account terms that enable payables to minimize the cash needed to carry receivables," says Summers.
* Employ technology - Use financial software sufficiently matched to your accounting needs and cash-flow situation. Also use electronic transfers, when available, to make timely
payments on bills.
* Plan and project - Make financial projections for expenses and revenues on a yearly basis, and take into account available cash reserves in the process. Projections should cover
best-case and worst-case situations in addition to the most likely cash-flow forecast.
* Use loans appropriately - Consider taking a short-term loan from a financial institution familiar with your business to cover temporary cash shortages… but don't overuse or abuse
the privilege. And pay off such a loan in a timely manner.
* Renegotiate long-term loans. Better terms can improve cash flow by extending payments on principals. "Loan officers can be accommodating to reasonable requests for
consideration from valued small-business clients, as long as the client is forthcoming with pertinent information," says Summers, who is a former bank CEO.
* Sales: a double-edged sword - Increasing sales can be a boon to cash flow if billings cover cash terms. However, credit sales stretch cash reserves, causing cash to flow out
faster than it comes in when depleted inventories must be replaced.
* Improve purchasing practices - Suggestions for better buying include: refrain from big equipment purchases, such as electronic items, as long as possible; use lines of credit wisely
and pay them off before interest builds; buy in bulk when quantity price breaks are significant on useful items.
* Invest in your business - Marketing your business and providing selective training for yourself and your employees can pay returns by increasing business and improving cash flow.
* Value accounting expertise - The services of a good accountant can serve as an investment rather than an expense. Have an accountant review monthly and quarterly cash-flow
projections and results. Accountants also can help small business clients stay on top of quarterly tax bills with accurate projections of tax liabilities.
"While these suggestions are not comprehensive, they do offer small business owners several valuable ideas for improving cash flow," Summers says. "And positive cash flow can go a long way toward maintaining or improving the health of any business."
Source: http://www.missouribusiness.net/news/cashflow_041505.asp
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