Business ownership is a risky venture involving many hidden dangers. The biggest hazard is that you have all kinds of important things to get done and you’re keeping at least 5 balls in the air at the same time, but losing your focus on the financial side of your business. With all of the demands on your time that is a common issue.
The solution is to divert a few minutes a day to review your cash position and the upcoming demands on your cash. Hire someone to help you pay attention to this important aspect of your business. Monitoring your daily cash position, forecasting cash needs, and measuring timing of receipts and payments will help you maximize your profit. You want to have enough cash at the right time so that you can take advantage of opportunities like taking a discount for paying your vendors by the 10th of the month.
If you carry inventory, you know that in order to stay in business you must understand the inventory cycle. You must have the right inventory on hand when the orders come in, but you don’t want too much of the items that don’t sell quickly either. Reviewing sales trends and talking with your customers will help you maintain the “right” amount of inventory.
Having the ability to invest excess cash or draw on a credit line when cash is low is crucial. Talk to your banker about the opportunities s for protecting yourself if you hit a cash crunch. The best time to secure a credit line is when you don’t need it.
Also look into options for putting idle cash to work for you through investing. Too much cash in the bank means that you are not looking for growth opportunities. You can use excess cash to pay off debt, invest in short-term securities, buy a competitor, or pay cash dividends.
Review your accounts receivable aging report several times a month to make sure that you are collecting from customers on a timely basis. If you let too much time go by, you may lose your opportunity.
Cash flow is the most important part of the financial puzzle to monitor and understand in your business. Minimize excessive costs, make sure that your debt load is manageable and that you can keep current with your obligations. You want to maintain your professional image and show lenders and creditors that you are organized and that you manage your cash needs carefully. It’s all part of making your business successful.