Weathering a Cash Crunch - Better Cash Management Practices

Cash flow: It's a rare small business owner who doesn't have to worry about it. And the current economic climate has only made matters worse. Short of borrowing money, what steps can be taken to ease a company's cash flow problems? Frequently, it comes down to better cash management.

Money In

Be prompt about sending out bills. Instead of using a 30-day billing cycle, bill customers immediately after goods or services have been delivered. To get cash in the door more quickly, consider offering customers a small discount for paying their invoices early. If that isn't successful, charge an extra percentage on past-due invoices. You may want to switch habitually slow-paying customers to COD.

Generate cash by getting rid of slow-moving inventory. Return the items where possible and come up with a plan to move the rest, even if it means marking down the items substantially.

Money Out

For new inventory purchases, avoid overstocking by carefully planning the quantities that need to be kept on hand. Instead of buying supplies all at once, buy smaller quantities more frequently. Buy in bulk only if there's a significant price break.

Negotiate the best possible payment terms with your vendors. Pay your bills on time, but don't pay them before they're due unless you're offered a discount for early payment. Seek ways to cut costs by shopping for better rates on insurance, telecommunications, and other overhead items.

Look for opportunities to reduce taxes. For example, make planned machinery and equipment purchases before year-end to generate a write-off on this year's tax return. Qualified property acquired and placed in service after September 8, 2010, and before January 1, 2012, is eligible for a "bonus" first-year deduction equal to 100% of cost.

Keeping Track

A cash flow budget projects cash inflows and outflows on a month-to-month or week-to-week basis. It can be an invaluable tool that alerts you to upcoming cash flow problems so you can take steps to improve the situation.