Managing Cash Flow Basics

Making sales is vital for a company's existence, but managing cash flow properly is the true test of how well a company operates.

Here is an excellent overview of cash flow for a company coming from the Agricultural Extension Service of the University of Tennessee. It was published in 1999 by Rob Holland, Assistant Extension Specialist, Agricultural Development Center and is taken from this document titled Understanding, Planning, and Managing Cash Flow.

Cash flow is primarily the difference between cash coming into the business and cash going out of the business during a given period.

Here are ways to manage cash flow:

1. Decrease the amount of money owed to you-- get customers to pay their bills
2. Cut out excess overhead expenditures
3. Keep a close eye on inventory
4. Don't overpay taxes
5. Review owner's compensation - secondary income may be valuable to the success of many small business ventures in the early years
6. Maintain tight reigns on billing and collections
7. Consciously structure the payment of bills - pay bills closer to the deadline but do not incur late fees
8. Consider biweekly or monthly paychecks
9. Update company procedures to make process more efficient and cost-effective
10. Plan ahead - he advises using cash saving activities such as renting instead of buying or purchasing used equipment versus new equipment, finding cash paying customers and quick paying customers versus giving credit and late payers.
11. Develop a good record keeping system