Cash Management Tools
Do you know where the money is hidden in your business?
Look inside, first!
An area often overlooked by a capital-seeking entrepreneur is
inside the business itself. Look inside and be creative before
seeking external funds. You may have a stronger position, in
future negotiations with investors and lenders if the company has
a history of profitability and positive cash flow, developed from
sound cash management. It may also help to avoid a dilution of
the ownership.
Professional investors and capital providers look at the cash
management systems developed within the firm. These systems aid
the small business owner to maximize the value of internal funds
while reducing the amount of external funding needed to grow the
business.
Many times, a small business owner can reduce the need for
external funds by focusing on three key areas: Accounts Payable,
Inventory, and Accounts Receivable.
The objective is to get paid from your customer, before you
need to pay your vendor, so that you don’t create a cash
crunch.
Other common cash management tools
- Whenever possible, negotiate credit terms with your
vendors and suppliers.
- Make materials and supply purchases "just in
time".
- Consider leasing equipment instead of purchasing it.
- Sell obsolete inventory.
- Collect any salary advances or notes payable from
employees and officers.
- Request customer deposits or payment in advance.
- Consider accepting credit cards instead of offering
internal credit terms.
- If you offer credit, consider discounts or terms to
encourage customers to pay sooner.
- Collect on all outstanding accounts receivable. Follow
through even on charge-offs.
- Take available discounts for advance payment or quantity
purchases, when appropriate.
