Every small business owner can attest to the importance of cash flow. The amount of time it takes for a dollar to pass through your business from raw material purchases to the sale of finished goods to money in the bank is a critical factor in determining success. According to the latest edition of the PNC Economic Outlook survey, business owners are more pessimistic about their cash flow than they were six months ago: Only 42 percent expect cash flow to increase over the next six months, compared to 51 percent last fall. Regardless of your current cash flow situation, it is a good idea to occasionally take stock of the cash management tools at your disposal. Below are tips to help you and your commercial clients maximize cash flow and make the most of your money: Develop a Liquidity Plan: Does liquidity ?just happen? or do you have a plan in place to manage your cash on hand? By creating a simple cash forecast to predict when payments will come in and go out, you can anticipate disruptions to your cash flow. Consider maintaining a line of credit to avoid fluctuations. And if you have significant, predictable payments that occur infrequently such as tax or insurance payments, consider a reserve fund that you grow on a consistent basis to neutralize the disruptions that these disbursements may cause. Take advantage of technologies: The innovative banks offer a variety of technologies that can help manage your cash flow. Traditional services like credit card processing speed up your collections. Corporate cards help to consolidate and track spending as well as make fewer, better timed disbursements. Remote deposit enables you to deposit checks from the convenience of your office. Online payroll enables you to do your payroll online anywhere that Internet access is available. And automated (online) access to investment balances and lines of credit help keep your cash balance within a target range. Revisit your receivables strategy: Offering credit discounts to your customers may be a competitive requirement in your industry, but be sure to examine these practices closely. How much financing are you providing to your customers? Is every customer treated exactly the same? Are slow payers getting a free ride while you are searching for some liquidity relief of your own? When you look closely at this element of your business model, you can usually identify some opportunity to improve cash flow. Seek out inventory opportunities: According to the PNC survey, 61 percent of business owners expect the prices they pay their suppliers to increase. Assess your inventory needs carefully, evaluate your mix of suppliers and possibly renegotiate trade terms. Inventory always creates pressure on cash flow and now may be the time to reevaluate your practices. Managing cash flow is one the most important things small business owners can do. Poor cash flow is a leading cause of small business failure. By revisiting your contingency plans, leveraging technologies and managing the factors that create cash flow pressure, you are better able to protect your business through the good times and bad. Gretchen Underwood is Assistant Vice President of the Commercial Banking Group at PNC Bank in Manassas, Virginia. To find out if you have the best solutions for the changing needs of your business, contact Gretchen Underwood 703-472-8670, or email her at [email protected].
