Where Do I Begin?

Using cash management to help your business may seem intimidating, but it is a necessary step to taking more control over your financial activities. Here are four steps you can take right now to begin your cash management journey:

1. Review and refine your accounts receivable: This first step involves analyzing your accounts receivable and refining these processes, if necessary. For example, you can standardize your billing process so that you are using the same process for simplicity and speed. You should also make it easy for customers to pay you by implementing payment reminders and, if you can, incentivizing them to pay sooner by offering early payment discounts. If you do have delinquent payments, you should have a standardized process in order to take action quickly.
2. Re-evaluate and manage your accounts payable: Almost just as important as analyzing the money that comes in is analyzing the money that goes out. You can improve your cash management by examining your expenses, vendor contracts, supply bills, and employee costs. For example, we highly recommend periodically evaluating both your payroll and consultant spending to ensure those payables are in line with your cash forecast and overall strategy. If not, you may need to make some hard decisions, whether it is letting employees go or moving consulting in-house. Either way, making those decisions sooner rather than later based on your cash forecast will help you stay afloat. You will also want to make sure you are not sending money out before money is coming into the company. This means reviewing the timing of your payments, due dates, any early payment discounts, and grace periods offered. In business, nearly everything is negotiable, and this includes vendor and supplier contracts. You may also find you are paying for unnecessary services, subscriptions, and other areas where you can either scale back spending or negotiate better deals.
3. Cash flow forecasting: I mentioned earlier that Critical Connexion has helped clients predict their company’s future cash needs, but how is this done? You can start by reviewing your organization’s historical sales data, and we recommend having, at a minimum, a 13-week cash flow projection as a subset of an annual forecast. Ideally, a 3- to 5-year cash forecast is optimal so that you can answer the following: What months are more lucrative than others in which you will have a surplus of funds? When do your sales historically go down? By understanding this data, you can then predict your expected cash flow and then use that cash wisely or build a cash reserve for unexpected events (or for investing!).
4. Use your technology: Use what you already have or purchase new software to simplify your invoicing processes, bookkeeping, and financial reporting. Online payment platforms make cash inflow easier, and accounting software like Netsuite can work wonders in saving you time and money by streamlining and managing expenses, invoicing, and report generation. Technology can also make your cash flow forecasting easier so that you have a better understanding of your cash position (as mentioned in #3).