- Review financial statements each month, including the Statement of Cash Flow, to gain an intuitive sense of how decisions and business conditions impact both profit and cash.
- Prepare a Cash Budget for the coming year to predict possible cash shortages. Use it to determine the minimum line of credit that you will need negotiate with your lender.
- Budget for inventory and other equipment purchases. These don’t appear on your Income Statement, and are typically not part of a budget for revenue and expenses. Plan in advance to finance purchases of long-lived assets so you retain cash. The best time to ask for money is before you need it.
- Use your credit line for working capital. If you are routinely at the top of your line, discuss refinancing options with your lender.
- Monitor trade supplier balances and maintain accounts within their terms.
- Minimize your cost of carrying receivables by taking credit cards in lieu of offering in-house accounts to customers.
- Make it easy for customers to pay by offering a range of payment options, including credit cards and Automate Clearing House (ACH) for recurring customers.
- Be clear about who you grant credit to and what terms you offer.
- Make use of credit checks and establish a service history before you grant credit.
- Issue invoices regularly instead of waiting until statements go out at month end.
- Know what it takes to get a bill paid and who to call if there is a problem.
- Establish a routine for follow up of past due accounts and stick to it.
- Control your investment in inventory to reduce the amount of cash tied up.
- Review your inventory holdings and target old inventory for quick sale.
- Review sales and inventory levels regularly. Schedule ordering to coincide with demand to avoid tying up cash in raw materials or merchandise.
- Make sure inventory control and buying practices are communicated, understood and followed by staff. Consider how to improve procedures to improve inventory efficiency.
- Establish a calendar for expanding your business. Detail milestones for adding equipment lines, staff or locations. Estimate the funds needed and investigate financing options well in advance of the targeted expansion.
Listen to Profit Soup Founder, Barbara Nuss, share her thoughts on the Statement of Cash Flows on the Profit Soup Podcast (also available on Apple and Spotify).