LUTZ BUSINESS INSIGHTS
cash flow problems? 5 ways to improve it
mike perry, client accounting services director
You can fix some of the problems your small business faces and move on. You change couriers or banks or suppliers if services and fees aren’t acceptable.
Cash flow is not one of these. It’s a constant battle, one that you will always have to be monitoring. Here are five steps you can take to make some headway.
Balance your receivables and payables
You value your customers—especially the long-term ones—but are you being too generous with them by having terms of 30 or 45 days while your suppliers expect payment in 15? Making those two sets of due dates match more closely should improve your bank account balances.
Of course, this will require some negotiating with your vendors and/or breaking some bad news to your customers. Consider offering your customers early payment discounts and applying finance charges to late remittances. Appeal to your long-time suppliers and see if you can stretch out those due dates.
Send and accept electronic payments
Pay your bills electronically wherever possible. This will allow you to pay right before the due date rather than sending a check 10 days ahead that may be cashed quickly. You might even consider paying with a business credit card that offers benefits you need, like cash back – as long as you always pay your bills in full.
Offer the same courtesy to your customers. Establish a merchant account so they can make bank or credit card payments. You are likely to get paid sooner.
Tighten up your inventory
Inventory levels that aren’t closely monitored and adjusted can be a drag on your cash flow. Stock too much of an item that’s not selling, and you have money tied up unnecessarily. Let yourself run short on popular items, and you’re losing sales. You need to have real-time inventory counts so you know ahead of time when to have a sale and when to order more items. This insight can also help you determine when it’s time to raise or lower prices.
Personalize your collection efforts
Email reminders are fine, but they’re rather impersonal and easily ignored. Customers who are seriously in arrears should get one or more of the following:
- Statement with a handwritten note on it
- Personal business letter sent via U.S. Mail
- Phone call
Cash flow forecast
You need to know where your money is all the time – and where it might be in six months or a year. For that reason, you need at least two standard financial reports: Statement of Cash Flows and Cash Flow Forecast. These are difficult-to-impossible to assemble manually—even in Excel. And they’re hard to interpret.
Software and Expert help
If these actions sound too complex and time-consuming, you’re probably not using accounting software like QuickBooks, which can help you with all five steps. We can get you set up with it; we can also provide you with a cash flow analysis. Contact us, and we’ll help you make a plan for dealing with this perpetual problem.
ABOUT THE AUTHOR
MIKE PERRY + CLIENT ACCOUNTING SERVICES DIRECTOR
Mike Perry is a Client Accounting Services Director at Lutz with over 15 years of accounting experience. He focuses on providing business consulting, software implementation and training, accounting procedure assistance and outsourced accounting replacement consulting for closely held companies.
AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
- American Institute of Certified Public Accountants, Member
- Nebraska Society of Certified Public Accountants, Member
- Intuit Certified ProAdvisor, QuickBooks Advanced
- Certified Public Accountant
- BSBA in Accounting, University of Nebraska, Kearney, NE
- Community Bike Project Omaha, Past Treasurer
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