How Do I Control The Cash In My Business?
By Erik Owen
If you don’t have to worry about cash flow these days, you are not only fortunate, but also in the minority. Whether your sales have dropped or you are beginning to grow, many different factors can put demands on your corporate cash.
Here are some management techniques to help you manage your cash flow:
Manage or Reduce Expenses
Just like your budget at home, when income goes down, you need to review expenses and determine which ones can be reduced or eliminated to help reduce the cash going out of the business. This could be as straightforward as dropping memberships or eliminating unnecessary travel and entertainment. Or as complex as reviewing healthcare, 401(k) plans, or even compensation plans.
Be careful to assess both the long-term in addition to the short-term effects of any of these changes. Taking some extra time to understand the effects of changes and communicating them well, can make a huge difference in their effectiveness.
Remember, no amount of cutting will replace a growth strategy when it comes to sustainability. The important factor here is the right sales growth.
You want profitable customers. These customers may pay more for your product or service, they may buy more profitable products/services than other customers, or it may cost less to service these customers because there are more efficiencies.
Manage Customer Payments
If you have sales of $5M and your average customer is paying in 45 days, the extra 15 days of receivables are over $200K. If you shorten the time in which your customers pay, you may be able to reduce borrowing, which would also reduce interest expenses and free up cash.
Leverage Supplier Relationships
Have you asked your suppliers to carry more or better inventory for you so you can reduce the inventory you carry (and therefore have to buy)? Have you asked whether your suppliers would consider consignment of inventory (pay for it when it sells)?
Yes many are stretching their suppliers as they get stretched, but make sure you communicate well and don’t burn these relationships. You’ll need them later.
Review your Borrowing
If you have high-interest credit cards or loans, or the wrong mix of term debt vs. a line of credit, you may be paying too much for your borrowing. Getting your debt in line will not only reduce interest costs, it may also help cash flow significantly.
Oak Hill Business Partners is a professional services firm serving small and mid-sized businesses. Oak Hill provides Growth Management Services, Mergers & Acquisitions, and Financial Institution Services.
Erik Owen is the President of Oak Hill Business Partners and has over 20 years of professional experience in Finance and Accounting, Administration, and General Management. You can call Erik at 414.852.0015 or email him at erik.owen@OakHillBP.com.