Review Numbers

Importance of maintaining adequate cash flows:

America’s number one small business challenge which causes many failures is maintaining an adequate cash flow. Unfortunately, managing cash flow is a struggle for many business entrepreneurs. Owners need to manage forecasting, collecting, disbursing, investing, and planning for a business to operate smoothly. Most businesses start having difficulties when the cash inflows and cash outflows do not keep pace with each other leaving the business short of cash and unable to pay its operating obligations. The following reminders are to assist businesses maintain appropriate cash flows:

Major Causes of Small Business Cash Flow Problems:

  •  Problems with collecting accounts receivable—40%
  •  Seasonality of sales—23%
  •  Unexpected variations in sales—15%
  •  Weak sales—13%
  •  Other causes—9%

Steps to Shorten Cash Flow Receivable Period:

  •  Invoice customers immediately upon delivery of goods or services
  •  Monitor customers’ use of credit and adjust the credit limits accordingly
  •  Offer customers a discount for paying their invoices early
  •  Establish a deposit policy for works in progress
  •  Tracking past-due accounts and actively pursuing collections

Cash Flow Warnings through Self Assessment:

  •  Business costs growing faster than sales
  •  Awareness of true costs of products and services
  •  Employees mistake sales for profit
  •  Competition or softening in the industry turning products in commodities
  •  Calculate how much cash is needed to fuel the business growth

Steps in Preparing a Useful Cash Budget:

  •  Determine an adequate cash balance
  •  Forecast future sales
  •  Forecast cash receipts
  •  Forecast cash disbursements
  •  Determine end-of-month cash balance

Cash Flow Management:

  •  Take advantage of money-saving opportunities
  •  Make the most efficient use of available cash
  •  Finance seasonal business needs
  •  Develop a sound borrowing program
  •  Develop a program of debt repayment
  •  Provide funds for business expansion
  •  Plan for investment of surplus cash

Avoiding Cash Crunch:

  •  Closely managing receivables and payables
  •  Utilize an appropriate inventory control
  •  Bartering whenever possible
  •  Careful investing
  •  Trimming overhead costs

Know When the Business is Generating a Profit:

  •  Know total expenses both fixed and variables
  •  Know costs of goods or services
  •  Know how to analyze monthly financial statements
  •  Know the monthly net income before and after taxes


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