Want more cash?

There are definite signs of an improving economy but, as you know, there is still a great deal of uncertainty about where the economy will be this time next year.  The question of the day is this: Is your company in a position to take advantage of business and financial opportunities that are opening up?   If not, how quickly can you get there?  Read this short article to learn about a few time-tested things you can do now to improve your cash flow, improve your profit margins and strengthen the value of your business.

Here are things you can do now to get more cash:

1)     Define your personal and business goals, create a business plan, and adopt an annual budget process.  These are your roadmap to success.  Without them the old adage that “failure to plan = planning to fail” is absolutely true.

2)     Diversify your customer base and address customer issues promptly.  If you grant credit to customers define how you are going to measure their credit worthiness and how you are going to grant and manage credit limits.

3)     Mitigate the risk of default of your key suppliers by finding and qualifying alternative suppliers who can help keep your business going if need be.

4)     Take yourself out of the role of being the key “doer” of day-to-day things.  Performing routine functions on a daily basis means you are working in your business not on it.  It sounds trite but it is so true.  Every minute you spend doing something that could be delegated to others is a minute you aren’t focusing on, and building, your business.  If you are in this trap it will be hard to change but it is vital to the success of your business that you do so.

5)     Religiously review the financial health of your business every month with an expert..  In that review, look at backward facing financial statements as well as forward looking forecasts and cash flow projections.  From those reviews you will see things that need attention and decisions now.

6)     If you have inventory, be sure you have a good inventory control system.  If you don’t have one, get one.  It will pay for itself quickly.  Inventory represents a significant amount of working capital that is tied up and not available for other things.  Often it is the source of expensive losses that owners aren’t aware of until it is too late.

7)     Reduce family members and friends who work in the business.  They are difficult to manage and control and often don’t have the skills needed by the company as it grows.

8)     Formalize a cash management program to ensure that your company always has the cash it needs.  This requires someone who understands the flow of cash in & out of your business.

9)     Define internal processes & procedures and review them annually to eliminate wasteful activities that always creep into business processes.  Stay ‘lean and mean’; it’s money in your pocket.

Now let’s talk about a few sources of cash.  Some are obvious and some may be new to you.

a)     Bank loans – Banks are still struggling to recover from the recession.  But, many banks have money to lend.  The caveat is that for most, their requirements have tightened considerably from the “old days” circa 2007.   When applying for a loan from a bank, or from anyone for that matter, remember the 5 C’s of credit.  These are things all lenders take into consideration before making a decision.  They are; Capacity (your ability to repay the debt), Capital (the amount of personal money you have already invested), Collateral (guarantees you can offer to assure repayment), Conditions (current economic conditions in the country, state & your industry), and Character (your track record of repaying loans best measured by your credit score).

b)    Personal loans to the business and loans from family and friends

c)     Factoring of accounts receivable – Factors provide an advance against some or all of your accounts receivable when you need cash now.  It does not represent new working capital.   A factor may take on all your receivables or one or two invoices at a time in a “spot factoring” arrangement.

d)    Purchase order financing – This is an option for businesses that need cash quickly in order to fulfill one or more purchase orders from clients.  Unlike factoring, this is a source of funds that is based on a customer order not on a promise to pay for services or products that have already been delivered.

e)     Excess inventory – inventory is like cash sitting on the shelf.  Keep on hand only the amount of inventory you absolutely need.  Get rid of slow moving items and those with low margins to the extent possible in your business.

f)     Investors.  They can be a life saver but they typically want a piece of the company in exchange for their investment and that might be a controlling interest. In addition to cash, investors typically also bring new contacts and knowledge to the table that can be as valuable as the cash.

Want to know more?  Contact me at dcasebere@b2bcfo.com.

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