One of the most frequent killers of companies is overexpansion. Growth typically leads to development, which can result in serious cashflow management issues. While every industry is different and has different needs and characteristics, cash liquidity is a unifying need among them all. So, when growth is a risk how do you expand without running out of cash? These handy steps will help you develop the correct mindset for managing your cash:
Have short Accounts receivables, and long Accounts Payable. This obvious suggestion will help keep your coffers fuller for longer. Beyond the tips for enforcing this, changing your mindset, embracing the philosophy of this simple line will your mind to manage your cash properly.
- Writing Checks? Send them on Thursdays. Most checks sent on Thursdays won’t be delivered to the business address until Monday at the earliest, and may not be cashed for a couple days after that. Thus, giving you five days of float with your money.
- If your vendors accept credit cards, pay by credit card. Credit cards offer you two major advantages; they allow you to push off paying for invoices by generally 30 days, and your purchases earn you points. If every dollar you spend nets you some benefit, why not pay via credit card? It’s important to be wary that your vendors do not put a fee on the transaction, as that simple 2% upcharge might remove the benefit you get from using the card.
Don’t apply for loans when you need them, apply beforehand. Every business, no matter the industry, will most likely need to borrow from a financial institution at some time. Having a line of credit open prior to borrowing yields two benefits; the ability to draw from the line as soon as you need it, and not having to deal with the bureaucracy of banks when you’re tight for time and cash.
- Don’t wait, apply. With the economy just starting to turn around after the recession interest rates are the lowest they are going to be for a long time. Secure your rate now, save money later.
- When applying for loans a business should apply for revolving lines of Credits. Unlike a standard loan, a revolving line allow you to borrow against the line at your discretion. Also unlike standard loans, rotating loans allow you to continue borrowing against the line as long as you continue to make payments.
Planning for when you are going to be tight on cash is essential for cash management, but when will that be? While it may not be 100% certain, looking at prior years’ cashflow can show you trends that appear in your industry, and your individual business, and can help you to plan for these cash pitfalls.
- Report on your cashflows at the end of every month, at around the same time. This will help your data remain consistent when forecasting. Remember to keep track of any notable expenses that aren’t typical – for instance, sending sympathy or congratulatory flowers to a client or treating employees to lunch. When looking at trends in your own cashflow it can be easy to forget about these expenses.
There you have it, my tried-and-true tips for cash management. Put these in your back pocket and you’ll be able to grow your business, and your cashflow, without fretting about overexpansion.