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Cash Is King!
By Donald N. Lombardi
Cash is the lifeblood of your business. If you manage it well your company will be strong and healthy. If you do a poor job of managing your cash your business will probably fail. The single fact that a business fails is lack of money.
If you haven't considered cash management an important issue, then you are probably undermining your business's short-term stability and its long-term survival. But how can you manage business cash better?
You must first start with understanding how good cash-management practices can influence your company's growth. Then dive into forecasting your business-cash needs and learning how to handle a cash crisis. Assembled here are practical pieces of advice,that you can use to get a handle on business cash.
Usually when someone goes into business they feel that all they need is a checking account and a package of Quicken software to keep track of sales and key financial results. But after about a year or so, they realize that there are all kinds of questions. Like, what should we do with whatever excess cash exists, and how would we really ever know for certain if we do have any excess cash?
If you have not considered such questions, you may be undermining your company's long-term prospects. There may be no financial discipline that is more important, more misunderstood, and more often overlooked than cash management. Business owners should be thinking about this issue from day one. But most do not because they have other issues on their minds. So long as more money seems to be coming into the business than going out, many company owners don't give cash management a second thought. And that leaves them vulnerable to all kinds of cash flow dangers.
Luckily, the first step to improved cash management is not exactly nuclear science: just start maximizing cash flow. There are often ways for businesses to improve their cash position simply by making certain that their billing, collections, and payables systems are operating as efficiently as possible. Aim to bring cash into the company as quickly as possible: bill promptly, aggressively follow up on overdue invoices, and, if possible, require up-front deposits when making sales. Then hold onto your cash as long as possible by managing your payables. That means, quite simply, take as long as you are allowed--without incurring late fees or interest charges--to pay your company's bills.
To practice a more elaborate form of cash management, you must be able to accurately assess your current cash position and make fairly reliable predictions at key intervals about how much you will need to meet the company's expenses.
Start preparing more finely detailed and meaningful monthly financial statements that include cash-flow forecasts. Once you understand your cash position, you can often follow a course similar to the one families follow when building up an emergency nest egg: put small amounts of extra cash in a money-market account, on either a monthly or quarterly basis. Granted, you will not earn a fortune, but you will earn some interest while keeping the company's funds accessible.
If your company's cash flow becomes so predictable that you can set aside sums for several months or more, you might be able to make a slightly greater commitment by purchasing certificates of deposit. Although there are penalties for cashing in CDs early, those penalties should be manageable in an emergency. To minimize the risk, buy smaller CDs and try to stagger their maturity dates.
In any and all cases, exercise judgment. The biggest cash management mistake a business owner can make is to take huge risks when investing spare cash. That's because it's all too easy to lose your company's cash cushion, and possibly even to jeopardize your business's survival, by making inappropriate investments.
Copyright © Donald N. Lombardi http://www.HomeBasedBusinessWizard.com
P.S.: Download This FREE eBook Dotcomology-The Science Of Making Money OnLine"
About the Author
Donald N. Lombardi is a business consultant, as well as an Expert Author on Home Based Business. Prior to starting his consulting practice in 1984, Don spent over 20 years as a senior executive in Corporate America.
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