April 12, 2017 | Posted in:

Better Manage Your Company’s Cash Flow with These 3 Tips

Having a grasp on your organization’s daily cash flow allows you to know its pulse, which is critical during growth phases.

Better yet, effective cash flow management can keep your startup or emerging business on the right track.


If you let the new business failure rate be your guide, you might never start your own company. Only 50 percent survive the first four or five years. Many former business owners who returned to a less-than-satisfying 8 to 5 job might tell you that their business hit the rocks when it ran out of cash. Of course, many factors can contribute to business failure. But an owner’s inability to manage cash effectively — whether from neglect, lack of skill or inability to restrain spending — is a sure harbinger of trouble.

But don’t the income statement and balance sheet provide a complete picture of the company’s financial viability? Not necessarily. For example, your company’s net worth may be climbing year after year, while cash balances are being depleted. Or, your business property is appreciating in value and your accounts receivable are increasing. Both contribute to a positive net worth, yet neither bolsters your bank account directly. Ultimately, cash flow is more than just a profit and loss statement — there are several factors that go into accurately understanding your company’s cash flow calculation.

To generate cash, assets must be sold and receivables collected. Both take time. Meanwhile, cash must be available to cover ongoing expenses such as rent, payroll and utility bills.

Consider these three tips for managing your company’s cash flow.


Better Cash Flow Tip 1: Analyze cash every month.

This doesn’t have to be a complicated procedure. Simply prepare a schedule that shows the cash balance at the beginning of the month, then add cash you received (from sales, collections on receivables, asset dispositions, and so forth), subtract cash you spent, and calculate the ending cash balance. If your cash balance is decreasing month by month, you have a negative cash flow. If it’s climbing, your cash flow is positive.
Keep a Real-Time Watchful Eye on Cash Flow Using Xero and Dashboards

Better Cash Flow Tip 2: Anticipate cash flow needs.

Perhaps your sales generally decline in the summer months. Build up excess cash in the good months in expectation of covering payroll costs and fixed expenses every summer. Track your cash flow for a few years; then use that analysis to help you develop a more accurate forecast. To smooth out cash flow, you might also consider establishing a line of credit that can be paid back as cash becomes available.

Better Cash Flow Tip 3: Establish good credit policies.

Set limits for extending credit. Ask new customers for business references. Send out invoices the same day goods are shipped and charge late fees for clients who don’t pay their balance on time. When payments don’t arrive, send out collection letters promptly.

Is credit and accounts receivable/payable a weak spot for your organization? Consider going paperless with automation options to keep tasks accurate and on time.

Manage cash well, and your business stands a much better chance of surviving the challenges of today’s economy.
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The information contained in this newsletter is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information or for assistance with any of your tax or business concerns, contact our office.


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