Tips for Improving Cash Flow

The first step for improving your cash flow is to understand the history of your cash flow. This requires that you schedule your cash inflows and outflows. Once you understand the history, you can take steps to cut cash outflows and increase collections (cash inflows).

One of the biggest cash outflows is payroll. Payroll should be managed with flexibility in mind. You need a workforce that works when needed as opposed to 5 days a week, 8 hours a day. Consider diversifying your work force into a mix of temporary workers, part-time workers, and outsourcing of non-value added activities. Also, don't forget you can extend your payroll float by distributing payroll checks after 2:00 o'clock on Fridays.

Your purchasing practices should also consider a mixed approach. For example, why do you have to buy everything new? Purchasing used items or renting can save a lot of cash flow. You may want to purchase in minimum quantities, especially if your cash flow is tight. And do not hold inventory that isn't moving - get rid of it!

Other cash traps include insurance. Do not use insurance to cover all risks. Make sure you retain some risks, especially if the risk is not materially significant and not likely to occur very often. One of the fastest rising insurance outflows is health care costs. Make sure you have a preventive program for your employees. This can include things like annual cholesterol screenings, reimbursement for quit smoking programs, and company participation in outdoor activities. Finally, aggressively monitor your outstanding receivables and begin to take action at the first sign of trouble. If you have doubts about a customer's ability to pay, require an advance deposit.

Written by: Matt H. Evans, CPA, CMA, CFM | Email: | Phone: 1-877-807-8756

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