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To whet your appetite, here are a few strategies from our Virtual CFO team.


Up Your Cash Flow

Cash is the lifeblood of your business. It is the one thing that you absolutely must manage well or you will fail. Unfortunately, errors in managing cash are both common and expensive. However, there is some good news--cash is fairly easy to manage.

Here are some quick things you should do to improve your cash flow:

Bullet 1 Do you know right now exactly how much cash you have? This is obvious and simple, but often ignored. It is, however, absolutely crucial. You should know at all times exactly how much cash you have.

HINT: If you have a single checking account, you can do this easily by just recording each transaction at the time it takes place and calculating the new balance. If you have multiple accounts, then devise some way of aggregating that information so you can see the whole picture at any point in time.

Bullet 2 Do you reconcile the bank statements as soon as they come? If either you or the bank has made a mistake you need to make sure you correct it at once. The reconciliation is your chance each month to be sure you are in touch with reality.

Bullet 3 Do you have a base cash balance that you never drop below? Most managers think they only need to be above zero. If you are in business, you should have a balance below which you never go.

HINT: You set this "baseline point" any way you like. If you don't know how to set it, use one third of your monthly sales as your "never go below" point.

Bullet 4 Do you have a method of projecting your future cash needs? You manage cash in the future. Consequently, you need a way to anticipate problems while you have time to work on solutions.

HINT: If cash is a problem, then you should do a weekly analysis showing what you expect to collect over the next six weeks and the amounts you will pay over that same period. If you have enough cash, then monthly projections over the next twelve months will be adequate.

Bullet 5 Do you know what is causing your cash problems? Cash flow problems are always a symptom of something else that is wrong in your business. Perhaps you are not collecting receivables in a timely fashion. Maybe it is lack of sales. It could be drawing more money out of the business than you should. Maybe you just don't have the amount of capital your business needs.

HINT: I need to give a word of caution here. Many people jump to the wrong conclusions about the cause of business problems. For example, if receivables are averaging 45 days to payment when terms are 30 days, managers may blame the problem on lack of follow-up by the collections clerk. However, further investigation may reveal that sales invoices are sent late. BE SURE YOU KNOW THE REAL CAUSE OF YOUR PROBLEM!

Bullet 6 Do you have a written plan of action? Once you know the cause of your problems, you need to prepare a written list of actions you plan to take. Make sure your plan addresses the real cause of your problems and that the actions you plan to take will make a difference.

Bullet 7 Do you follow through on your plan? You need some simple way to know how your plans are working. Some simple, temporary report that measures progress is best, but any way you can devise to assure that the plan is implemented will work.

HINT: After more than 30 years of working with businesses I can absolutely say that the biggest single weakness I see is lack of follow-through. Companies identify problems and lay out plans, but then move on to the next issue and just assume that someone is executing the plan. If you make a plan, write it down and then follow-up on a frequent basis to see that your plan is implemented. If the action doesn't seem to work, then modify or eliminate it. Never just let a planned action drift into oblivion.


Good luck. Taking the seven steps above will begin to bring a sense of action and control to your cash problems.