Financial Management Tips to Keep the Cash Flowing

There are so many intriguing layers to running a business. Though you may have the best products and services in your industry, they all mean nothing if you can’t properly manage your cash flow. You need cash to adequately market your products and services, hire and pay staff, manufacture and produce results, and provide customer service. If your cash is always tied up in one aspect of business or another, your business stands to become stagnant. To avoid this common pitfall, here are some tips on effectively managing your cash flow:

  1. Better Record Keeping

One of the most basic yet important concepts to managing cash flow is diligent record keeping. When the subject matter is your company’s finances, there is really no such thing as being too observant of your money. It is important to implement a process for keeping a record of all financial matters within the business including your banking statements, receipts, invoices, expense reports, and payroll. If you can’t afford to hire an accountant, there are plenty of affordable accounting software packages you can invest in to help make recording finances a lot easier. When you have a clear understanding of where your money is you’re better prepared to make financial decisions for the future.

  1. Improve Receivables

If you’re in the business of extending credit to your customers, then your receivables are where a lot of your cash is tied up. It is important that you have clear guidelines and contracts between your customers so they pay in a timely manner. Popular methods for getting customers to pay on time include offering incentives like discounts for paying prior to the 30- or 60-day timeframe. Other ways to improve your receivables would be to offer several methods of payment so that customers can opt to electronically pay you for your products or services. You also want to make sure that you have a follow-up process in place for customers who are nearing their due date to try and get the funds collected.

For problematic customers or outstanding invoices, some small business owners opt to consider factoring accounts receivables. Factoring companies will purchase the outstanding invoices from qualifying companies and give cash up front. This way you can use the money without having to wait for the customer to pay you.

  1. Efficient Filing

Another part of maintaining financial records is having a systematic filing system in place. Whether you’re currently operating with digital forms or you still prefer to use paper, there needs to be a system in place that will keep all financial documents in order. Cloud file management systems are trending for businesses that utilize digital forms. Documents can easily be scanned and uploaded to the server for safe keeping. When the forms are needed, they can be easily accessed by specific staff members who have permission. This keeps things from getting out of hand or overlooked as tons of paperwork often can.

  1. Consider Different Payment Terms

If you’re really having a hard time collecting from your customers it might prove beneficial to consider different payment terms going forward. By requesting for example, that customers give you a 50 percent deposit upfront, you’re lessening the amount of cash you have outstanding. If you’re going to make changes to payment terms, it is important to do so in a manner that does not upset current customers. Incorporating it into new contracts, for instance, is ideal so that there is no confusion going forward.

  1. Maximize Payables

Your customer’s aren’t the only ones who have to foot a bill; you also need to make sure that you’re paying your vendors on time. If you can slow down the process of repaying your vendors, then you can effectively manage your cash flow a bit better. This might include asking for extended repayment options so that you have 60 to 90 days to pay them. If you like this option, be sure that you don’t overdo it by forgetting to pay your vendors on time as this could create more financial issues for you with late fees and a ruined business relationship.

Effective money management is the key to operating a business. Without the cash for operating costs, the business will slowly but surely dissipate. If you’ve been having cash flow issues, try incorporating some of these ideas into the mix. Over time, you should start to see some cash free up that can be put to use elsewhere such as in developing new products and services or expanding your business in the next few years.

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5 Personal Finance Books to Add to Your Reading List

What have you been reading this summer? Every person reading this post likely has a different answer. Some prefer lightweight reads in the summer months such as young adult fiction or romance novels. Other prefers historical fiction, political satire, or biographies. Maybe sci-fi and fantasy are more your speed. Whatever you have been reading, hopefully you’ve enjoyed it.

Now, let’s talk about a few books you should be reading as your autumn closes out. When it comes to personal finance books, everybody could use a little bit more information, and a little more education. Whether the authors are giving advice on saving money, living on a budget, or investing, books on personal finance are great additions to anybody’s summer reading list.

This is why we have put together this list of 5 books on personal finance that you should read before the weather turns cold.

Women and Money – Suze Orman

Suze Orman has provided insightful financial advice to people for decades. She continues this pattern with “Women and Money”. Suze Orman recognizes that when it comes to money women need both education and empowerment. This book includes a 5 month program that helps women establish financial independence and personal freedom. Many books provide a lot of heady, high level information.

Ms. Orman takes a more practical and relatable approach providing women with specific steps that they can take towards improving their financial situations.

Why didn’t they Teach me this in School: 99 Personal Money Management Principles to Live – Cary Siegal

Cary Siegal wrote this book upon realizing that his children and their peers would graduate from high school and college without any formal, personal finance education. In spite of covering 99 principles, this book is quite easy to read and the lessons are conveniently parsed out.

This book targets young adults, but there is valuable advice here for any age group.

The Success Principles: How to get from where you are to where you want to be – Jack Canfield and Janet Switzer

Do you have plans and life goals that you have yet to achieve? Maybe you would like to start a business or go back to college. Whatever your plans are, it can be easy to feel stuck where you are, and getting to a place where you have achieved your goals can seem impossible.

This book is a goal-oriented book that gives financial advice that relates to conquering your next challenge. The authors include daily action steps, ways to increase your confidence levels, and practical advice on living in the modern age.

Rich Dad Poor Dad – Robert Kiyosaki

Rich Dad Poor Dad is a book about money lessons learned from two different men and the influence those lessons had on the author. The lessons he learned from the rich dad in the novel gave the author the opportunity to retire before the age of 50. In this book, he passes that knowledge on to others.

Many readers will be surprised to find that what they have been taught about money is completely off base.

Total Money Makeover – Dave Ramsey

Dave Ramsey is a well-known author, financial guru, and a nationally syndicated radio talk show host. Ramsey has a very easy to read writing style, and provides a lot of great practical advice to his readers.

The best endorsement of Ramsey’s is advice is simply the success that his readers and listeners have achieved by following his advice. Many are put off by Ramsey’s tendency to be extreme in his rhetoric, and that is a valid criticism. However, if that can be ignored in favor of focusing on just his financial advice, readers can learn a lot.

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Guide to Buying a Small Business

Embarking on a small business venture takes courage, lots of energy, and a willingness to take risks. This guide to buying a small business, instead of starting a new business from scratch, will showcase several advantages that buying an established small business venture offers.

The current owner has already done the crucial, real-world testing, and established a cash flow track record, which proves the products or services have a market. Learning how to buy a small business is largely a matter of paying attention to due diligence, and evaluating three core concepts.

1. Cash Flow and Profit Margin

One of the most important questions to ask when buying a small business is what is its profit margin? Profit margins vary between industries, and you should do your homework on what is a competitive level to shoot for.

The income and cash flow statements should give you a window into what is working for the company, and if there are products or services that are dragging down the profits. What to look for when buying a small business is the breadth of the customer or client base. If losing one or two major customers would jeopardize the cash flow of the venture, you should develop a marketing plan that brings in new clients.

2. Human Resources

What to consider when buying a small business in terms of human resources are the following: employee morale, work ethic, and commitment to quality. Taking the time to talk with as many of the employees as possible is a great investment. You need to find out if they are committed to staying with the business, and if they have ideas on areas in which the business processes can be improved.

Just like a business that is too dependent on a few customers, the loss of key employees can also destroy the venture. You need to make sure the crucial employees are willing to stay, or train in their replacements.

3. Processes

There are processes the business uses for everything from marketing, customer service, manufacturing, inventory, billing, receivables, etc. By asking lots of questions on the current processes, you gain a clearer picture of the true health of the business. This post is a good guide to the legal processes which may be involved.

What is the cost to acquire a new customer, and how is it accomplished? Does the business rely on advertising, trade shows, or word of mouth, and is there a marketing plan to test new ways to generate more business? How much is an individual customer worth over time, and is there a system to sell them additional products or services?

How current is the business on paying its bills? And how efficient is it in collecting its receivables? The balance sheet may list receivables as assets, but the employees may know which ones really are unrecoverable.

How accurate does the business know the cost of goods sold? Many small businesses have very poor inventory control systems, and manufacturing often is delayed by parts shortages. Does the business check with several vendors to keep its costs down?

Is there space allocated to dead inventory? Just like bad receivables, some inventory listed as assets may well be worthless. Even worse, the dead inventory continues takes money to store, count, and manage.

If it is a manufacturing process, how current is the equipment? If a piece of equipment breaks, what is the repair or replacement cost? And what does the work flow look like. Many companies have just grown over time without any thought to work flow, and have ended up with an inefficient process.

What is the quality of the products and services the business produces? Do customers continue to buy from the business, and refer new customers to it? How good is the business at meeting its time commitments to customers? What is percentage of products that are defective, and returned?

Final Thoughts

After taking the time to investigate as many of the business processes and employees as you can, you will be in a position to evaluate the numbers. Is the business sustaining growth, or have revenues and profits margins dropped? What is the reason the business is now for sale?

Before you make an offer, you need to have a clear plan on the direction you want to take the company. Does it require more working capital, new equipment, new product development, expanded marketing efforts and better customer service?

By doing the appropriate due diligence, you can deduce the inherent risk of ownership, and the investigation process itself can uncover new ideas for your success!

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