SCORE Small Business Blog

Managing: How Should You Manage Business Cash Flow During Tough Times?
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Manage cash flow carefully

“Cash management should be a significant part of good business management in both ‘good’ times and ‘tough’ times,” says Bob Paul, my fellow counselor from SCORE Chicago.  “Improve cash flow both by reducing expenses AND increasing sales. Don’t focus just on the expense side.”

Paul knows what he is talking about.  He was Vice President of Credit and Collections at John Deere for a multi-billion portfolio of loans to businesses and individuals.  Here’s his RX for today’s entrepreneur:

Increase sales efforts

  • Improve your lead generation process to find new potential customers.
  • Convert more potential customers into buyers.
  • Find ways to get more repeat business from old customers.
  • Offer and encourage the purchase of add-on products and services to increase average transaction sizes.
  • Revisit pricing and look carefully at profit margins.


Maximize Cash In

  • Whenever possible, avoid accounts receivables. Get payment in advance or upon delivery.
  • Send statement out quickly. Delayed statements delays payment.
  • Have a solid collection strategy and follow it. Let the customer know you care about payment.
  • Review credit policy, especially on larger customers.  Sales do not help if you don’t get paid.

Minimize Cash Out

  • Pay accounts payable on time, but not ahead of time.
  • Use electronic payment to avoid early payments.
  • Compare the costs of renting or leasing to buying.
  • Negotiate everything.  Your vendors are also anxious about the economic climate. This can be a good time to renegotiate prices, terms, and delivery schedules.
  • Consider temporary and flexible hours for employees. Lay off staff when necessary. Keep your employees informed.

Watch Inventories

  • Find vendors who can supply smaller quantities quickly. This will reduce overall inventory levels.
  • Dispose of obsolete inventory – even at a loss. Holding worthless inventory uses up your cash.
  • Keep inventories and assets (such as computers) secure. Have appropriate processes to avoid theft and fraud.


Stay on top of cash

  • Have a solid process to verify daily cash receipts. Don’t tempt your employees with poor processes.
  • Take complete control of check writing. Personally evaluate every penny being spent. Eliminate or delay expenditures where ever possible.


Keep your banker informed
of your status. Make him or her comfortable that you are doing an effective job of managing the business.

Evaluate your personal budget along with the business.  Avoid and reduce personal expenditures and lower your withdrawal from the business.

Meet for a free, confidential talk with a SCORE Counselor like Bob Paul if you run into cash flow or debt problems.

Related postsThe 3 C’s of Cash

-Peg Corwin, SCORE Chicago
View more posts by Peg

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Discussion (5) Comment


  1. Jackson HillVisitor

    does anyone know a website or tutorial about business management ?-”*


  2. ChrisVisitor

    The number of unknowns of this financial upheaval is an immediate distraction and I appreciate your advice. My knee jerk response as a self-employed business person is to look for the stability of a corporate salaried position, but that may not actually be the most stable or relevant direction for me to take at this time.

    It makes senses not to panic and to use this time to take actions that I can control – actions that can pay-off now and in the future. Good things to focus on would be networking activities, reconnecting with associates, sharing insights etc. I noticed that your underlying message was to ‘stay the course’. I saw this advice as well in another article on w2wlink.com http://www.w2wlink.com/Articles/Leading_in_Times_of_Crisis_Staying_Calm_Women_Business_artid159.aspx
    Hang in there everybody!

  3. Susan, I checked back with Bob Paul and he responds:
    Cutting back on spending is a lot like cutting back on desserts. Unpleasant, but often necessary. Look for the big items first – vacations, car payments, restaurants. Then one often realizes that there are no really “Big” items, just hundreds of small ones – extra trips to the store, buying things because they are on sale, setting the thermostat lower, gifts to others, daily menus, lawn services, cable service, phone service(s), internet, and everything else. Often times people don’t even know what they spend money on. The first step is to keep track of every penny for a month. Then pretend you HAD to live on 25% less. Swallow hard, and start cutting. But don’t forget to let your close friends know you have turned a new leaf. This does two things – your new behavior won’t shock them and it creates a commitment for you to follow through.

    I just read where the governor of Michigan chose to live on a “food stamp” budget for a brief time. This was about $3 per day per person. For some people this is “normal”. We can all find ways to reduce if it is important to us.

  4. Lowering your the amount you withdraw from your business during difficult financial times seem like such a logical thing to do and yet it seems to elude so many business owners. I would love to see more discussion on this topic.


  5. MartiVisitor

    This is a concise and complete listing of the actions business owners can take to gain better control of their cash flow. This serves as a checklist for a business owner to make sure they are on track in both fat and lean times. Thanks, Peggy.

    All the BEST,
    Marti Benjamin, Professional Certified Coach
    Business Energetix–Success Coaching

 

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