Your business success depends largely on your ability to manage cash. This will call for a careful evaluation of your spending to identify the areas where you can cut costs. Cash management is also important when your business is going through a down cycle. It won’t be wise to spend money in your downtime the way you would when you have a lot of revenue coming in.
Use the following cash management tips as part of your ongoing strategy to control your costs.
In a nutshell, cash management involves making the best use of your business cash flow. This will include an evaluation of your trade-offs and opportunity costs. For example, any surplus cash you have on hand can be used to make timely payments to your vendors in order to get invoiced discounts for early payments. On the other hand, you can invest that surplus for short term benefits. It’s up to you, as the business owner, to decide whether you’ll use the cash on hand to take advantage of growth opportunities for the business. The decisions made will vary from one business to another.
The complexity of the cash management function also varies depending on the size of your business. A small business, for instance, might be able to get by with just one bank account. A larger business will operate out of several bank accounts, collections, payroll, disbursements, investments, and so on. If the business has more than one location, there might be several of these accounts at every location.
Pooling the surplus balances where several accounts are involved might be complicated. But it can be accomplished by consolidating them into one central account from which the money can then be invested for short-term benefits.
When it comes to cost control, the emphasis should be on liquidity. You’ll need to have sufficient cash on hand to meet your business obligations – payroll, payment to vendors, utilities, etc – and keep the business solvent. Use the following tips to streamline your cash management.
- Close down your dormant accounts or consolidate accounts where possible. Depending on the amount of accounts you close, you’ll save a tidy sum of money over the course of one year. Another benefit is that you’ll reduce the chances of accounts being used for the wrong purposes.
- Talk to your banker about reducing fees when you have multiple accounts with the institution. Special arrangements can be made to improve your lines of credit or waive fees on specific accounts. You can also discuss an increase on interest paid if you maintain a certain balance.
- Setup up online accounts for each account at the bank so you can closely monitor your balance and transactions.
- Reconcile your bank accounts on a regular basis to spot and repair discrepancies.
- Make good use of your credit terms with vendors and schedule your payments so that they made on time.
Wherever possible, make your payments within a timeframe where you can get discounts for prompt payments.
Ruby is a software developer working for an IT outsourcing company. Her current project revolves around creating financial asset management systems that can be used by different institutions. Follow her on Twitter @RubyPWarthen