Successful cash management is the first step in having sufficient funds to meet your business’s financial obligations. Cash planning allows you to add inventory, expand to new locations and take additional steps to grow your business. It requires the attention and expertise of everyone on your management team.
Providing a Snapshot
Your business’s cash flow statement is an important document. It records the cash coming in (inflows) and the cash going out (outflows), including cash from operating activities, financing activities, and investing activities. The bottom line of the statement shows how much cash is available to the company. It’s a good place to start your planning.
Maximizing Available Cash
Having as much cash on hand as possible should be the goal of managing cash flow. You can accelerate collections by encouraging the use of electronic payments and credit cards and by offering customers discounts for prompt payment. Postpone cash outflows by delaying payment to vendors for as long as possible to keep more cash in house. Implementing a purchasing plan can help prevent your business from holding too much inventory without receiving payment for it and thus tying up cash in unsold goods.
Having Adequate Insurance
Business insurance protects you from financial loss due to accidents, natural disasters, product defects, and lawsuits. You can purchase separate insurance policies that provide specific coverage for each type of loss, or you can buy a business owner’s policy that combines all coverage options into one bundle. Combining coverage is typically less expensive. Business owners with a home-based business who may not need such extensive coverage can have a rider added to their homeowner’s policy that offers protection for a small amount of business equipment and liability coverage for third-party injuries.
Coordination is Key
Maintaining close relationships with your financial, legal and tax professionals can provide you with the guidance needed to keep your business running smoothly. Financial and tax planning are essential activities for the small business owner. Having the guidance of professionals can lend an unbiased perspective to your endeavors and help you better manage your business’s cash flow.
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