Cash
Flow
Many of us are in positions where we have
our own business or we are in a managerial position within a company. The
quickest route to a decline in business is to not properly manage cash flow.
The following are issues that may benefit you with your cash flow analysis.
Keep Good Records: Having reliable records is key when reviewing cash
flow. You want accurate figures to make good sound decisions. Remember the
saying "garbage in/garbage out". One of the first items necessary
when reviewing cash flow is to make sure that you have procedures in place to effectively
report and record the inflows and outflows of the company. This information
should be reviewed at least once a month. Ask yourself questions when reviewing
your information. Why are sales up or why are they down? Do expenses seem high
this month or do they seem low? By asking questions in reviewing your figures
you will ultimately find an answer that will hopefully lead to a healthier cash
flow.
Prepare a Budget: Every year the prior year's figures should be
reviewed and the upcoming year's figures should be budgeted. A budget means two
key factors are apparent in your business; Goals and Focus. By planning the
upcoming year, you help to avoid the element of surprise. A budget also allows
staff members to have some valuable input into their respective departments.
Manage Payroll: The largest expense for the majority of companies is
payroll. Make sure that you have a method in place to measure employee
productivity and profitability. In downtimes are there jobs that can be
consolidated? Are employees keeping track of their billable or job related time
accurately?
Manage Receivables: If you sell something, you need to be paid and be
paid in a timely manner. Do you charge finance charges for late payments? Do
you manage your receivables to contact those that are late and work on a
payment plan now before you get that bankruptcy notice? Do you use a collection
service for past due accounts?
Stop Fraud: Several businesses do not address this area. You
should have a policy in place to safeguard assets and have proper checks and
balances. This is a necessity if you are a cash business or a business owner
who is not present at the business location. If a policy is in place it will
help minimize fraud and help minimize cash lost due to fraud.
Review your insurance policies and
vendor suppliers: You should
review your suppliers annually to make sure that you are receiving good service
at a good price. Keep a close eye on telephone and Internet costs. Make sure
that you are paying a fair rate not the highest rate. Review insurance policies
annually. Make sure the proper coverage is in place. Check the deductible
levels. If the deductible were to be increased what would be the premium
savings?
Manage Debt: Does the business have a line of credit to help cash
flow needs for down times or if your business is cyclical? What are the rates
and terms of current debt? Does it make sense to refinance in hopes of a lower
rate or a longer/shorter term?
The above is not all-inclusive, however, it
should give some insight into the importance of cash flow and how it may be
enhanced.
If you have any questions regarding the
above, please do not hesitate to contact us.
