It is mandatory that businesses (and individuals alike) have a money supply large enough to meet their obligations as these come due, to provide a cushion for emergencies and planned or unexpected growth opportunities.
While the generation of profits is a key performance indicator for business of all sizes, the expression “cash is King” is axiomatic in the context of small businesses. Never the less many lending agencies are not inclined to work with or support small businesses.
Unfortunately, many profitable small businesses no longer exist because of failure to properly manage cash flow. It is critical that small business owners become intimately familiar with the five principles of cash management. These principles include:
- Proper management of accounts receivable:-
- Setting credit limits
- Adequate vetting of major customers
- Lowering the average collections period
- Maintain proper inventory levels:-
- Optimize re-order levels
- Monitor storage conditions
- Minimize obsolescence
- Minimize warehousing costs
- Proper management of Accounts Payable:-
- Establish regular payment schedules
- Maximize the use of full payment periods.
- Plan major expenditures:-
- Timing of purchase
- Installation and set up
- Establish an investment strategy and plan:-
- Set clear objectives and investment period
- Match investment vehicles with objectives
Speaking to a qualified business advisor can help your business increase profits from a good cash flow plan. Call us at (682) 651-5988 to schedule a time for a free strategy session to review your current plan.
Cash Flow Management – FindlayCPA | www.findlaycpa.com