A sensible cash management system can provide a comfortable cushion during those inevitable slow times when the phone isn't ringing and customers aren't coming to you as often as you'd like. Here are nine powerful techniques to help you improve your cash flow and net income right now:
1. Never allow any of your money to lie idle.
Deposit all of your daily receipts into the money market account, where they will immediately start drawing interest. Never deposit receipts directly into your checking account. Keep a minimum balance in the checking account and transfer cash by phone or online only as needed to cover any checks written. The banks have made this technique so easy to use that there is no longer any reasonable excuse for not using it. While even money market interest is anemic now, interest rates are likely to start climbing in the future and you'll be set to benefit when they do.
2. Don't be in a hurry to pay your bills.
On the other hand, don't jeopardize your credit standing by paying bills late. Pay your bills just before they're due--not long before, and not after. It's especially important to avoid late payments on credit card bills because of the oppressive penalties most have in place.
3. Be aggressive collecting accounts receivable.
Dunning late-paying customers may not be your favorite pastime, but setting up an accounts receivable file and following through on late payments is as important to your financial success as the quality of the products you offer. If your customers learn you are cavalier about money owed to you, you can be certain they will stretch your patience (and your cash flow) to the limit.
|4. Diversify to keep cash flowing.
This is an important strategy when business is off and revenue is down. During slack times, any income is better than no income. Consider offering a variety of products in a range of price points during slow periods, and sale prices that do not satisfy your usual parameters of profitability. This approach makes sense by providing work to help smooth out the inevitable and costly ups and downs of cash inflow.
5. Maintain a cash cushion.
Try to keep enough cash in interest-bearing accounts to cover normal operating expenses for three to six months. There is nothing like the peace of mind and self-confidence that you get when you don't have to sweat out next month's rent or next week's supply bill during a business slowdown. Also, keep in mind your cushion money is making money for you in those interest-bearing accounts.
7. Let your computer help you manage your cash flow.
The most popular software packages designed for small business are infinitely easier to use than they were as recently as a couple of years ago. More importantly, they will teach you in dramatic fashion how much you can benefit from a sensible cash management system.
8. Consider leasing.
"The nature of business accounting is such that leasing can be the most sensible approach to many types of capital investment," says accountant Jay Blumenthal of Abington, Pa. "It usually makes sense to lease if you will be able to use the cash in your business or in your investments to earn a better return than the cost of leasing." Talk to your tax advisor about this the next time you're considering any large capital purchase.
9. Spread the gospel.
In another time or another place, someone may have bought the necessary equipment and supplies, placed a single ad online or in the Yellow Pages, and sat back while the phone rang off the hook and customers poured in. Perhaps, but not likely. Today, building a growing and profitable business requires an ongoing marketing program. There is no other way. Competitive prices alone won't do it. A high degree of professional skill alone won't do it. As one entrepreneur puts it, "You have to tell the world your story. If you don't do it, no one else will."
Taken individually, good cash management techniques may seem obvious or inconsequential. However, when you blend them together in a consistent manner, they will form a significant and permanent contributor to your bottom line and your economic future.
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