CASH: Get It, Keep It, Manage It!


It should be no secret that cash is the fuel that keeps a business running. Getting it, keeping it, and managing it; these are activities business owners should master if they want their business to survive. In financial terms, it’s called cash flow, and it means more to your business than just whether or not there is money in the bank.

For many businesses, there is a lack of understanding, not to mention effective management, of this critical area. Access to capital, the ability to attract investment, even survival depends on keeping cash flowing in a positive way.

Cash flow is defined as the movement of cash into or out of a business. It’s the cycle of inflows and outflows that determines whether or not your business remains solvent. If there is more going out than coming in, over time, this is not a good place to be. Ever been turned down for a business loan due to ‘negative cash flow’? The difference between the available cash at the beginning of a period and at the end of the period is cash flow. If this flow is negative, it means the company is spending more than it is receiving, and negative cash flows are often viewed as indicators of financial ill health.
So where does cash come from? Cash comes into the business from sales, from loans, from investments or the sale of assets. Keep in mind that not all sales are cash based. If you have credit terms that create receivables, it’s only when those receivables convert to real money in your hands that it becomes cash.

Where does cash go? It goes out to pay for operating and direct expenses, servicing debt, and the purchase of assets.

Managing your cash flow takes effort, and a cash flow analysis is the tool that makes this analysis possible. Cash flow analysis is the study of the cycle of your business’ cash inflows and outflows with the purpose of maintaining an adequate cash flow for your business. A cash flow statement is typically prepared to present the results of the analysis. The cash flow statement doesn’t show whether the business will be profitable, but it does show the cash position of the business at any given point in time by measuring revenue against outlays.                                       

Cash flow is all about getting the money from customers sooner, paying bills at the last possible moment, concentrating money to a single bank account, managing accounts payable, accounts receivable and inventory more effectively, and squeezing every penny out of your daily business.
— Leslie Mansonson, "Cash, Cash, Cash: The Three Principals of Business Survival and Success"

Leslie Mansonson provides a set of tips on managing cash flow effectively. Here are a few to get you thinking:

  1. Collect fast. Time is money. Use technology to get orders in as fast as possible(fax, email, etc.). Send out invoices the same day the goods are shipped, not later, and clearly communicate when bills are due and what late penalties will be assessed.
  2. Deposit checks fast, the same day they are received. See if your bank will give you availability of deposits in fewer days. Make it a priority to get deposits to the bank before their daily deadline to avoid a lost day.
  3. Pay close attention to accounts receivable! Be sure you have a solid credit policy. Credit should be earned with good payment history. Remember, you are not a bank! Check their references. Keep early payment discounts reasonable. Charge late fees. Follow up on late payers starting the very day they are one day late. Don’t ship on new orders if bills are unpaid!
  4. Don’t pay until you have to. Keep your money in your hands as long as possible. Paying early is often poor cash management. Reconcile your bank statement. Mistakes happen, and they can cost you if you aren’t on top of them.
  5. Remember that inventory is not cash. Until is transformed into cash in your account, it’s basically tying up your capital. Be as efficient with inventory as you can. Forecast as accurately as you can. What what’s selling and avoid stocking slow moving product. Shop around to get the best prices. Develop a policy to get rid of obsolete inventory. Selling it at a discount is at least generating cash.

Cash is king. Learn how to manage it effectively by learning when, where and how your cash needs will occur. Watch for trends that can take you in the wrong direction if left unaddressed.