Virtual Entrepreneur

Managing Your Cash Flow

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Brian Hamilton:
The lesson here is clear: Managers must manage their working capital accounts to maximize cash flow. One way to do that is to offer different credit terms to different customers. (Most small businesses don’t think to do this.) Generally speaking, reports on ‘aging’ accounts - receivables, inventory, payables, etc - need to be reviewed regularly.

Some other things to keep in mind when managing cash flow:
Get access to short-term credit. Small businesses often don’t have predictable cash flows. Having access to short-term credit - such as credit cards, home equity lines and credit lines from a bank - can make all the difference when weathering sudden shortfalls in ready cash.

Prepare realistic monthly forecasts. Entrepreneurs are inherently optimistic - an admirable quality, and all the more reason they should create clear-eyed forecasts for the coming months. There are plenty of easy-to-use software tools available, including ProfitCents (developed by my company, Sageworks), Intuit’s QuickBooks or just a plain old Microsoft Excel spreadsheet.

Make a personal budget. Entrepreneurs need not only mind the shop’s cash drawer; they also have to keep their households financially sound. Put another way, the business has to throw off at least as much cash as the entrepreneur needs to live. This might sound like an obvious point, but it’s one that often gets lost in the excitement and mayhem of running a small company.

Cash is a company’s lifeblood. Managing it is something that all entrepreneurs can do effectively - that is, if they want to stay in business.