4 Things A Successful Cash Flow Manager Does Consistently to keep a company on a firm financial foundation
I’ve said over, and over again that cash is king when it comes to the financial security of a business. Having the cash you need to operate on a short and long-term basis is accomplished by cash flow management. It’s a simple formula of bringing in income as fast as possible while delaying payment of bills as long as possible and eliminating wasteful spending.
These four things will help you be a good cash flow manager and place a firm financial foundation under your company.
Project, Plan and Measure Cash Flow
Most call it making cash flow projections, but I find that is inadequate. A projection is trying to determine, as closely as possible, how much cash will be coming into the company. It’s also called a SWAG (Scientific Wild-Assed Guess) because it is based on what happened in the past and what you think is going to happen in the future.
I prefer to call it Income Planning. Income Planning adds the step of actually figuring out, on a weekly or monthly basis, what the company is going to do to make sure the needed cash arrives. That means figuring out what to promote and how to promote it, and assigning sales targets and quotas to sales staff. It can also include research and development of new product lines and services to meet changing consumer desires.
Measuring the results is critical. You know your cash flow target, and measuring actual cash flow performance against that target can identify weaknesses in the planning and corrections can be made. You cannot plan on a bright financial future without doing these critical steps.
Improve Receivables
Speeding up the cash flow coming into your company is a tool every savvy cash flow manager employs. However, even if you somehow managed to get paid immediately for every sale, you still might find the company is cash poor.
Improving your cash flow is a balance between how much you charge, how fast the buyer pays, and how much profit is left on the bottom line. Selling big volumes of narrow profit margin items can leave a company relying on credit to pay the receivables.
Tactics to improve cash flow must include having and adhering to financial policies about what customers actually get discounts, and when. Simply offering a discount to every customer for paying faster can eat away at profits. Instead, reserve your generous discounts for those customers who consistently order profitable items, and who order in large quantities. Offer a slight discount to customers who pay by cash or check, and make the discount the equivalent of what you would have paid in credit card merchant fees had they bought using a credit or debit card. If you offer credit terms, put late paying and very slow paying customers on COD (Cash on Delivery) rather than refusing to do business with them.
Other tactics can include asking customers for up-front deposits when they order, and make the deposit enough to cover cost of goods and some profit. Bundle old slow-selling inventory with high demand items for a special price to get rid of unwanted inventory and free up the cash. Raise prices to keep up with the rise in the cost of doing business.
Manage Payables
Running tight control on when you pay your bills and watch your expenses closely. Growing sales can mean growing expenses, and that has to be accounted for. When expenses rise faster than sales, then cut-backs and running tight control on payables is necessary.
Cut-backs in discretionary spending can go a long way to improve cash flow and profits. Shopping prices on certain items every 6 months or annually can save money. Taking full advantage of your creditors’ payment terms is smart. Don’t pay bills early; pay just on time. Be careful and investigate your suppliers’ offers of discounts for early payment and make sure it is to your advantage as well as to theirs; read the fine print and know the details.
When purchasing from suppliers, weigh the difference between the lowest price and the payment terms to see if the lower priced supplier will put too much pressure on your cash flow because they demand COD or offer very short payment terms. Paying late can rack up late pay penalties or interest charges, and bank account overdraft and NSF fees can eat up cash very quickly.
Save To Cover Shortfalls, Emergencies, and Future Needs
At some point in time you may find yourself in a situation where you don’t have the cash to pay your bills. Every business encounters this on occasion and it doesn’t mean the business is failing, unless it becomes a consistent problem. Instead of relying on your credit cards or applying for loans to bail you out of a cash shortfall situation, be proactive and save for future needs.
Saving can be easy if it is done in small amounts on a weekly basis. Stash cash in a savings account for those times when cash flow doesn’t meet needs. For when some financial emergency occurs like the air conditioning compressor going out on the hottest day of the year or the loss of a large customer. And for future needs like purchasing a new piece of equipment or adding a new product or service line, or hiring more employees.
It takes constant vigilance and running tight control on the cash flow for any business to survive and do well financially. You can also rely on dependable cash flow management software to ensure that you get the numbers as accurate as possible and stay in control. Software products, such as the Cash Flow Mojo® software, could even help you in tasks like budgeting, sales and income planning, calculating accounts receivable, and, of course, in helping you be an effective cash flow manager.
4 Things A Successful Cash Flow Manager Does Consistently to keep a company on a firm financial foundation
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