Negative cash flow can happen unexpectedly. Whether your business is growing or struggling, managing your cash flow is the key to business survival. Working with privately held businesses, B2B CFO® has developed several proactive steps to help businesses monitor cash flow to identify and manage shortages before they cripple the business.
- Utilize both long and short-term cash management tools. Use an annual budget as a foundation to project cash flow for the entire year on a monthly basis. Make sure to identify large cash outlays and to anticipate seasonal cash flow cycles. It is also important to utilize a weekly cash management tool to manage short-term cash over a 3 to 8 week period. In our experience, cash flow management is essential for all businesses. The long-term forecast allows you to predict which months you can expect to see a cash deficit, and which months produce a cash surplus. A short-term weekly projection can assist with day- to-day cash management. These are tools that B2B CFO® can establish for you.
- Shorten collection times and accelerate accounts receivable. Your cash reserves can dwindle if customers regularly pay late. Customers should be invoiced daily, immediately after services are performed or products have been shipped. Actively manage accounts receivable with established collection policies. Consider creating a consistent collection process for when an invoice becomes overdue. For specific customers and situations, you can offer special terms or set a policy of collecting a deposit/down payment if possible. Also, be sure your own customer collection terms are in sync with your suppliers and vendor credit terms. For example, if your customers have 30 days to pay you, but your suppliers want to their pay within 14 days, a cash flow problem may arise.
- Effectively manage accounts payable. Don’t rush to pay bills early unless you are taking advantage of favorable terms (i.e., 2%/10 Net 30). Businesses that properly managing payables will avoid incurring late fees and interest charges. It is also beneficial to negotiate extended terms with your vendors when possible. By negotiating with vendors and suppliers, many are willing to extend payment terms with businesses they view as long-term customers. By extending your payables and accelerating receivables, you can improve cash flow quickly.
- Develop purchasing policies to keep inventory levels at a minimum. A business’ cash flow cycle is greatly affected by its inventory purchases. Businesses need to spend cash to buy inventory, which turns back into cash when it sells. Your cash flow is easily reduced by poor inventory management. Even worse, if you provide poor service due to poor inventory management, customers are going to lose trust in your business and stop purchasing from you. Steps like planning ahead, establishing systems and implementing best practices to track the quantity you order, stock and sell will help you determine the most efficient inventory levels, which can significantly improve your overall cash flow.
- Establish a banking relationship before you need cash—not when you need it. A strong banking relationship is invaluable to your business. Take the time to cultivate banking relationships that can be leveraged when opportunities or threats confront your business. The relationship you develop with your business banker should go far beyond a loan and a checking account. An established banking relationship should be able to provide solutions to help your business obtain financing, enhance cash flow and stay secure. Seek a banker who is a committed advocate for your business even when times turn tough.
- Seek expert guidance. You would be amazed at the number of small businesses that fail because the owner did not identify a cash flow problem in time. The key is implementing effective cash flow tools to identify both long and short-term cash needs. B2B CFO® is here to help you better forecast and manage your cash in order to fund growth and keep the business thriving.
Contact us today to learn how we can help you keep cash flowing into the business.