Have you heard the expression "Cash is king"? I'm sure any banker or accountant you have ever spoken to has told you this but have you listened? Managing your business' cash is the most critical activity you can do to survive the current economic conditions.
What is cash flow? Simply put it is the difference between cash in and cash out of your business. Note...cash flow is about CASH. We are not talking about sales, receivables, loans, payroll we are talking about CASH. Granted all of these components impact cash but cash is cash. Cash pays the bills and makes payroll. I guaranty the cash flow statement is the first page a banker will flip to in your business plan if you are looking for a loan. It is the life blood of your business. The challenge is that at times business owners get distracted and lose track of their cash position. Don't do this! Don't count on your accountant to manage your cash flow, you do it. You are the owner, know and manage your cash! I have see businesses go out of business because their sales have decreased or expenses have gone up and they have not made the needed adjustments to manage and maintain their cash. That is unfortunately when we get calls asking for our help getting a loan. By that time it is to late. A bank is not going to lend to a business that is declining and doesn't have cash to pay the bills or more important to the bank their payment.
Let me point out that declining sales is not the only reason to watch cash flow. I have seen many businesses grow themselves out of business. I remember a period in the early 2000's when for several years in a row the top business in the "Fast 50" was out of business the year following the award. High sales rates can cause increases in expenses that could drain cash. This is especially true if you have to produce and ship before you get payment. This can also happen if you have to carry receivables and have expenses prior to receiving payment. Remember, receivables are not cash.
Here is a good article from Bankrate.com showing 10 tricks to keeping you cash flow healthy. The thing is these are not tricks they are sound business management concepts.
Take responsibility for your cash position. Remember cash is what you use to run a business...do you have enough?
The BankRate.com article on cash flow does a good job of covering the basic points. Ideas to Deals readers who need to brush up on accounting concepts can use the Columbus Metropolitan Library Catalog http://catalog.columbuslibrary.org to locate and reserve books like "Keeping the books : basic recordkeeping and accounting for the successful small business" by Linda Pinson. Call our Library Info Line 614-645-2ASK if you need help finding and reserving books on accounting.
Posted by: Barbara Beardsley | December 11, 2008 at 02:39 PM