The Advisor

CASH MANAGEMENT
by Robert Sullivan

The value of planning in operating a small business can't be overemphasized. I hope you all are taking the time for this. This short article discusses the specifics of CASH planning - not fancy "projections" but real cash needs planning for the coming year.

Every business is different so you must research your own specific needs. My consulting business does not have significant cash reserve needs but on the other hand our publishing business does need reserves - to cover the cost of large printing jobs and to sustain us during the typical 90-120 days it takes to get paid in this industry. Look at your own situation and ensure you have the cash to continue operating. Think "worse-case" when figuring your reserve amount. What if your major customer is late paying their bill?

Part of cash flow planning is to set up a line of credit with your bank. If your business is new obtaining a line of credit is tough - it's almost certain you will have to personally guarantee this line. It takes time to set this up so don't wait until you actually need cash! This line of credit can be very handy, for example, in purchasing materials that have been unexpectedly reduced in price. It might make sense to stock up at the lower cost. Without your line of credit you might have to pass up opportunities such as this.

Stay in close touch with major customers. It might be necessary for you to assist them in the event that they have cash problems. It might be to your advantage to carry them for a while. Again, your line of credit will come in handy. Helping a customer can make him a life-long loyal customer!

Good cash management also requires you keep good records of expenses. It's easy with the software that is available. Programs such as Quicken and Quickbooks make organizing and tracking expenses an easy job. You should always check actual expenses against your planning numbers - make adjustments as necessary.

Watch receivables and payables closely. Take advantage of prompt pay discounts and avoid late payments! Don't let outstanding accounts go much beyond the due dates - this can affect your cash flow projections.

The good news about cash flow planning is that you will not have to worry about it and this gives you more time for the all important customers and employees.