If a business is to survive and prosper it must have good cash flow. Whether a company is on the brink of insolvency or easily making payments, every business owner must seek ways to improve cash flow. When a company increases the availability of cash, then it increases the ability to raise profits.  The following suggestions aim to assist business owners improve their cash flow.

1. Keep good financial records.  These records form the basis for future projections and decisions: a company is unable to know where it is going if it does not know where it has been.  Historical records will show seasonal fluctuations, problem customers and a host of other concerns for a business owner to consider when making a decision.  Technology has made record keeping easier for small businesses to accomplish.  Software, such as Quicken, database programs and spreadsheet programs, has made storage and retrieval of financial transaction information simple and timely.

2. Regularly analyze the Statement of Cash Flows.  Small business owners must examine the Statement of Cash Flows on a frequent basis, depending on the business cycle of the company.  A good rule of thumb is to review it monthly.  Frequent analysis allows an owner to identify problems and take action to correct the situation before it gets out of control.  Once again, software has made this task rather easy to accomplish.

3. Bill promptly.  The longer a business delays billing the customer, the later the business will receive payment.

4. Be aggressive with Accounts Receivable.  Send second notices as soon as invoices become 30 days old and consider charging interest after an invoice reaches 60 or 90 days.  Remember: the longer a bill goes unpaid, the less likely it will be paid.

5. Tighten Credit Terms.  Make attempts to shift as many customers from credit to cash basis with price incentives for cash payment, tighter credit terms or the elimination of credit.  Business also must use credit-reporting services, such as Dun & Bradstreet, to identify problem customers before offering credit.

6. Maximize Your Own Credit.  Hold onto money longer by waiting the full 30 days before payment.  If possible, use a business credit card; the billing cycle can add several weeks before payment is due.

7. Re-examine your Prices.  Calculate the breakeven price and analyze the pricing of competitors.   Small business owners tend to underprice their goods and services leading to low income and low profit margins.

8. Earn Income with Excess Cash.  Put reserve cash into interest-bearing accounts or short-term securities.  Careful tracking and planning of the company’s cash will allow a business owner to have this ability.

9. Cut Expenses.  As the adage goes, “a penny saved is a penny earned.”  In the case of a small business every penny saved becomes increased profits.  A good illustration is to note that at a 10 percent profit margin, a business would have to increase sales by $1,000 to increase profit by $100.  A reduction in expenses of $100 goes straight to profit.

10. Open a Central Asset Account.  Most brokerage firms offer a single account that allows a business to combine checking, investing and borrowing services.  The central account manages incoming money to cover loan balances or to earn income in an interest-bearing account.  The account puts money to use immediately upon deposit.

11. Consider Accounts Receivable Financing.  For a business owner that has a lot of money occupied in accounts receivable, A/R financing, or “factoring,” allows a business to receive payment immediately.  Usually, advances are 70 to 80 percent of the accounts receivable total.

The best way to manage cash flow is to be proactive.  By taking the simple steps listed above, a small business owner will be well on the way to increasing profits and success.  The following websites are useful resources for a business owner to examine for additional information.

http://www.bookcliff.com— The website for Bookcliff Funding Group explains the details of factoring and accounts receivable financing.

http://www.svobodamag.com— The website for Svoboda’s Home and Small Business Interactive contains articles designed to help entrepreneurs manage their businesses more successfully.

http://www.lowe.org— The website for the Edward Lowe Foundation, whose mission is to “champion the entrepreneurial spirit.”  The site includes over 3,000 indexed and abstracted documents to provide the solutions to the everyday challenges of the entrepreneur.  An interesting page to visit is the Business Builders and Interactive Toolbox, which has interactive how-to modules and worksheets on many aspects of starting and growing a business.

http://www.uschamber.org/smallbiz/index— The US Chamber of Commerce small business page.  This site is chock full of information and resources for the small business owner.  The site includes a great deal of up-to-date information, including news that affects every small business owner.