"Cash Flow Management"

Understanding what “cash flow management” is and how it differs from profit is paramount to small business success over the long-term. Peaks and valleys in terms of cash flow can in some businesses be so seasonal that it’s easy to schedule and plan for. In other instances, a sudden drop in cash flow can be the result of unforeseeable industry changes or economic shift that can quickly cause the doors of an unprepared company to close. This topic cannot go unchecked or ignored.
“Cash Flow” is the movement of cash into or out of a business. Managing cash flow is having a working knowledge of what monies are expected to come into the business (sales, receivables, commissions, etc.), what monies need to go out (payables, staff, professional fees, government remittances, etc.) and the timing of these transactions.
One of the key areas for a start-up or small business to examine under this heading is supplier terms. While you might start a relationship on a COD basis, as your business grows it is normal course for many suppliers to offer payment options such as 30-day or 60-day terms for their good customers. In many cases, these terms are the supplier’s primary way to keep you as a customer.
If your business has the option of buying the same product from any number of suppliers at the same price, “terms” will most likely help make your decision as to which supplier you’ll work with.
Having a business plan that utilizes your suppliers’ terms without recklessly accumulating debt can make a big difference in growing your small business.
When you begin a relationship with a supplier and you’ve negotiated whatever the starting terms are, be clear that you expect to renegotiate the terms once your business is established and has proven its importance to the success of his business.
When you begin a relationship with a supplier and you’ve negotiated whatever the starting terms are, be clear that you expect to renegotiate the terms once your business is established and has proven its importance to the success of his business.

When you manage your cash flow properly, this seemingly small item can amount to a substantial dollar figure. For example, it you are operating a company that has $100,000 each month in payables and your terms change from 30-days to 60-days, you would have the use of the $100,000 for an additional 30 days. Since that repeats itself for the next month and so on, the effect would be that you now have an additional $100,000 worth of capital to work with. Either then you save interest on your borrowed monies or go further in the growth of your small business.

Just like every other supplier, professionals should also be asked to provide a quote. While it may be a given that you are going to use them, its not unfair to ask for a quote for a large project. Sometimes these projects can become far more drawn out than you expected – not because you or the deal itself changed – but because the lawyer didn’t clearly understand what you wanted and what was required. It would be unfair for you to be penalized financially (in addition to any time delays caused) that are the result of their misunderstanding the challenge. Be succinct, complete and thorough in your explanation of the project and negotiate a fixed price whenever possible.

Certain areas of your cash flow simply cannot be changed. For example, government remittances, payroll, etc. Ensure that you do not become subject to government penalties or confrontations with government officials simply because your payments were even a few days late.

Cash flow has to be monitored constantly and at the very least, weekly. Ensure that even when your business is running well, that you do not become complacent in this area. For more tips on cash flow management visit www.startingabusinesscoach.com

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LeRoy Peters – Vice President Public Relations
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