- 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.