Posted by NASE Business Expert Gene Fairbrother - A basic management tool to keep your finger on the pulse of cash flow is a cash position report. While every business needs to be producing monthly profit and lost statements along with cash flow statements, these reports are monthly pictures while the cash flow report can be created every week or even every day to give you a flash picture of your cash position.
Start by setting up a spreadsheet on your computer with the following headings:
Month to date, Total Sales, Cash-On-Hand, % of sales, Accounts Receivable, % of sales, Accounts Payable, % of sales
Then, every few days, enter the respective amounts under the categories. Next, close your office door, turn off the phone, get rid of everything on your desk except the “numbers” and take an honest look at your cash position.
• Are sales decreasing or stagnant?
• Has cash-on-hand been on a decline?
• Are accounts receivables increasing?
• Are accounts payables increasing?
If you have any of the above symptoms, you have a potential cash flow crunch on the horizon and need to do something now! Don’t make excuses like blaming the economy because no matter what the reason, if you don’t find the cure, your business is in trouble.
Marketing Drives Sales
If sales are on the decline, you need to find ways to drive more money into your business.
• Are you marketing to existing customers?
• Do you know what marketing produces the most results?
• Are you losing customers to the competition?
Are You Charging Enough
Are your prices keeping pace with the costs of doing business? Do a little detective work on your competition and find out if your prices are in line with the market demand.
Cut Out the Fat
When times are good most businesses have a tendency to build fluff into their costs of doing business.
• Do you have surplus equipment not being used?
• Are you employee efficient or do you have too many people to serve customer needs?
• Do you need all those telephone lines, cell phones, or office space?
Shop for Better Prices
Every time you look at an invoice ask yourself, "When was the last time I checked to see if I could get this product or service at a lower cost"?
• Compare prices for general operating expenses every few months.
• Get several quotes on any purchase over $500.
• Ask about price breaks for buying in quantity.
Are You Getting What You Paid For
• Physically check all purchases to be sure it is what you ordered.
• Check invoices for correct prices, what was actually received, and math errors.
• Never pay from a statement. Only from original invoices!
Don't Let Inventory Get Out of Control
If your business has inventories develop specific par quantity levels to keep inventory moving. If your inventory exceeds par quantities or you have dead inventory on the shelves decrease upcoming orders or sell the surplus at a discount.
Pay Bills On a Regular Basis
Set a specific day each week to pay bills and only in an emergency write checks more often.
Will doing the above stop a cash crunch? Maybe or maybe not! But I will tell you that the majority of people the NASE business pros talk with who are in a financial crunch don’t have answers to the most basic cash flow questions about their business.