Strategies For Managing Cash Flow


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Strategies For Managing Cash Flow

  1. 1. Strategies for Managing Cash FlowCash Flow is the critical lifeblood of any business and is required for investment and growth. Inorder to generate cash, a business must efficiently and effectively manage the cash flow activities.These activities include accelerating cash inflows, delaying cash outflows, investing surplus cash,borrowing cash at favorable terms and maintaining an optimal level of cash. Here are a fewrecommendations you can use to manage your business cash flows more effectively:Address Any Immediate Cash Needs  Organize financial information  Forecast cash flows  Identify problem areas  Prioritize collections and payables  Establish time frames and goals for cash management  Strengthen business relationshipsCollect Accounts Receivable  Issue invoices immediately after the sale, rather than waiting until the end of the month  Offer discounts to customers who pay their bills quickly or offer discounts for prepayments only  Always deposit checks the same day they are received  Pick-up large checks in person  Ask customers to make deposit payments at the time orders are taken  Issue monthly statements to remind customers of amounts owed  Use aging reports to monitor and manage and project cash flow on an ongoing basis  Identify and pursue slow-paying customers  Send collection letters at 30/45/60 days  Institute a policy of cash on delivery (C.O.D.) as an alternative to refusing to do business with slow-paying customers  Take immediate action when a customer becomes delinquent  Impose a finance charge on customers that are seriously delinquent  Evaluate credit policies  Evaluate the financial soundness of customers before extending credit  Require credit checks on all new noncash customers  Identify and evaluate accelerating techniques for collecting your cash, such as lockbox services, pre-authorized checks and concentration banking  Be aware that the U.S. Postal Service’s recent decision to move first-class mail to a two-to-three- day standard will slow down bill collection for many
  2. 2. Strategies for Managing Cash Flow (continued)Manage Creditors  Communicate with creditors; if you need to delay a payment, youll need their trust  Take advantage of creditor payment terms; if a payment is due in 30 days, dont pay it in 15 days  Utilize electronic funds transfer to make payments on the last day they are due; this will allow you to retain use of your funds as long as possible  Carefully evaluate vendor payment discounts; these can amount to expensive loans to your suppliers, or provide you with an opportunity to reduce costs  When choosing suppliers, evaluate flexible payment terms vs. low price  Ask vendors / suppliers for trade discounts  Renegotiate existing loan terms  Develop multiple sources of supply  Consolidate debt  Develop a cash flow forecast before agreeing to any payment plan  Prioritize payments — e.g., IRS, bank, landlord, major suppliers  Negotiate partial payments, if possible  Past due taxes - contact federal and state agencies immediately; respond to tax collection letters promptlyReview Pricing  Review and evaluate pricing strategies  Consider revising your prices  Charge extra for emergencies, deliveries and other value-added services  Reduce or eliminate discounts and giveawaysManage and Reduce Costs  Analyze expense line items and review largest expenditures first; look for opportunities to reduce costs  Evaluate marketing and advertising program ROIs; consider lower cost programs  Negotiate a rent reduction or restructure to allow a short abatement period  Rent out unused space  Reduce personnel expenses — e.g., hire part-time, use interns, outsource, eliminate overtime  Reduce personal expenditures — e.g., travel & entertainment  Reduce or eliminate additional capital expenditures – e.g., computers, furniture, vehicles,
  3. 3. Strategies for Managing Cash Flow (continued)Manage Inventory  Review inventory levels monthly  Consider liquidating products older than 90 days  Sell outdated items at cost, if possible  Only restock faster-selling items  Consider drop shipping and avoid inventory  Consider using “Just-In-Time” ordering processes, if possible  Establish controls to eliminate inventory shrinkageManage Capital and Financing  Reduce or delay purchases of fixed assets  Borrow money at more favorable terms  Refinance or restructure debt  Sell assets  Increase equity in the business  Sell the business/merge with a competitor  Review leases on buildings & equipment; negotiate more favorable terms  Evaluate and select a bank that best serves your needs: services, investments, policies, terms & conditions, loan covenants, etc.Accurate, Timely Accounting and Controls  Review financial statements regularly in order to make timely management decisions  Prepare and review a cash flow forecast on a regular basis  Prepare cash forecasts for shorter periods of time (weekly or daily) if cash flows are tight  Establish appropriate financial controls  Enforce cash handling policies  Reconcile accounts on a regular basis  Prevent opportunities for embezzlement  Divide financial responsibilities and functions – establish a separation of
  4. 4. About Dennis FredricksonDennis Fredrickson has an impressive record of driving business growthand has been instrumental in helping many organizations achievesuccess. Business clients have realized benefits such as increasedcompetitive advantage, improved management of financial resources,and the ability to make better-informed decisions that improvedbusiness performance. This has resulted in increased sales, increasednet income and proactive management of opportunities and risks.Dennis’ background includes diverse finance and management experience from within world-class organizations including Universal Studios, Sprint, Employers Reinsurance (GeneralElectric), and Deloitte Touche, as-well-as small (including start-ups) and medium-sizedenterprises. His experience as a CFO and Finance executive includes financial planning &analysis, strategic planning, forecasting & budgeting, profitability initiatives, businessdevelopment, restructuring, process reengineering and more. His well-rounded businessperspective, experience and achievements in fast-paced, dynamic environments provide aunique combination of expertise and vision.Dennis continues to provide targeted solutions to help clients achieve their business goals. He isavailable to discuss your business challenges and opportunities. For more information or toschedule an appointment, refer to the links and contact information below.For more information, go to: www.CFOsolve.comConnect with Dennis on LinkedIn: Cell: 813.390.5545 Interim CFO services driving business growth “Move your success from chance to choice” ©