Software Club 210: Light Red/Club_Software_210_Light_Red_Micro_Star_1997.iso/sba/f225.sbe

Text File | 1997-01-01 | 5KB | 112 lines

@096 CHAP 9

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            │       MAXIMIZING YOUR CASH FLOW       │
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Money is still the ultimate labor-saving device, and cash
flow is the lifeblood of any business organization.  Yet
all too many small business operators are so concerned with
other matters that they fail to pay proper attention to
managing their cash resources properly.

Good cash management can make a significant contribution to
the competitiveness and profitability of your business.
Poor cash management is one of the main causes of business
failures, particularly among smaller firms.  A cash shortage
due to poor planning can often set off a chain of disastrous
consequences, even in a profitable business.

Cash flow management has two aspects--projecting future
cash flow and controlling and maximizing the cash available
from operations at all times.

(a) PROJECTING CASH FLOW.  Projecting your business's
near-term and long-term cash needs is a very crucial
function.  The purpose of making accurate cash flow
projections frequently is to bring to your attention any
point in the future where you may incur a cash shortage or
deficit, so that you can take steps in advance to prevent
that occurrence, such as raising new capital, borrowing
money, cutting prices to liquidate some inventory, cutting
back on a planned expansion, etc.  You may want to consult
your accountant for assistance in setting up worksheets or
computer spreadsheets to do regular projections.  Your CPA
may also have (or be able to recommend) computer programs
for doing cash flow projections.

(b) MAXIMIZING YOUR BUSINESS'S CASH FLOW.  The following
are a number of effective methods of maximizing cash flows
for your business:

   .  Bill your customers promptly.  The later they receive
      a bill, the later you will collect for a particular
      sale, in general;

   .  If you know that certain large customers must receive
      bills by certain days of the month in order for you
      to get paid that month, try to bill them before those
      deadlines if possible;

   .  Deposit your cash receipts in the bank daily, if
      possible;

   .  Keep close tabs on credit customers.  Send them past
      due notices as soon as payments become overdue;

   .  If you can do so without hurting business, add late
      charges to overdue accounts;

   .  Never pay bills until just before they become due,
      unless there is a worthwhile discount for quick
      payment;

   .  Try to keep inventories as lean as possible.  Even
      if you occasionally lose a small sale because you
      are temporarily out of an item, you should be far
      ahead of the game by substantially reducing the
      amount of cash you have tied up in inventory;

   .  Look for items in your inventory that are moving
      slowly or not at all.  Consider slashing the price
      on those articles to convert them to cash and also
      to reduce the cost of storing them or taking up
      valuable shelf space;

   .  Consider leasing equipment items instead of buying;

   .  Be sure that you are not paying more on your estimated
      income taxes than you have to.  You may qualify under
      certain exceptions that will allow you to delay paying
      much of your tax for the year until the tax return is
      due, without incurring interest or late payment
      penalties.  If you realize that you have already
      overpaid corporate estimated income tax for the year,
      there is a procedure for obtaining a refund, by filing
      IRS Form 4466, prior to the time when you can file a
      return;

   .  If your business has "net operating loss" for income
      tax purposes that can be carried back to prior years
      or a carryback of tax credits, a procedure exists
      for filing a claim for a quick refund of the prior
      years' taxes.  Individuals file a Form 1045 while a
      "quickie" corporate carryback claim is filed on Form
      1139.  File either as early as you can, since the
      IRS does not pay interest on these refunds;

   .  Instead of keeping all your business cash in a local
      bank account, consider putting a significant portion
      of your cash in an out-of-town money market-type
      account that pays interest and allows you to write
      checks against the account.  Since you will continue
      to earn interest on funds on deposit until the checks
      clear, consider using a fund in a distant part of the
      country, since, notwithstanding the electronic
      revolution, there is still some inefficiency and delay
      in the banking system, so it will usually take longer
      for your checks to clear when you make payments to
      local firms if your money market fund is located 3000
      miles away.