Cash flow, defined as the course of money through the normal operations of daily business, consists of both cash inflow (earnings) and cash outflow (expenses). Cash flow is a topic of considerable importance to the entrepreneur—and to serious business people everywhere. In a list of the top 75 concerns or problem areas of small business owners, cash flow ranked third overall, with thirty percent of respondents regarding it a critical problem. Only the cost of health insurance and the effect of federal taxes on business income, respectively, merited greater concern than cash flow.

An old adage seems appropriate in evaluating revenues earned in the course of doing business. A bird in hand is better than two in bush. Generally Accepted Accounting Principles (GAAP) hold that earnings must be accounted for whenever a transaction occurs, regardless of the means used for payment. In other words, if you sell a good or service on terms of credit, you treat the transaction on the books of your firm the same as if you had received payment in cash. However, in the real world, cold cash is far superior to any promise of payment at a later date—regardless of the interest rate associated with the credit terms.

It has been proven that many profitable firms have gone bankrupt or suffered serious financial crises. How can this be? The most common cause is insufficient cash available for the payment of creditors, suppliers, employees, etc. Aggressive and assertive policies towards the management of accounts receivable help to alleviate potential cash shortages which are capable of seriously disrupting your business dealings. One idea is to offer incentives for payment within a reasonable period of time (a 2% discount for net payment within 10 days, for instance) and assess penalties for late payments (an 18% APR for amounts received after 30 days is common). Most importantly, once you set firm policies for handling your accounts receivable, don’t deviate from them! You must not fear losing an account or offending a customer because of your policies. The potential costs in unrecoverable accounts if you do nothing are far greater than any potential losses in revenue for establishing solid collection policies and procedures.

It may sound contradictory, but, optimally, at the same time as you work to speed up payment to your firm by those who owe you money, you want to try to delay your payments to suppliers. For example, if one of your suppliers offers a 2% discount for payments within 10 days, you should take advantage of the savings, but wait 8 or 9 days to send payment rather than sending it immediately upon being invoiced. Make it a priority to benefit from cash discount offers from your accounts payable.

Regarding payroll, establishing biweekly or monthly payment of wages rather than weekly helps you hold on to your money a little longer—preferably in an interest bearing checking account which will make money for you.

Another area to watch is your inventory level. Ideally, you should keep steady downward pressure on inventory levels (within reason) to avoid tying up excessive amounts of your cash. Work towards establishing a just in time (JIT) operation where materials arrive as needed, and shift the bulk of the cost of maintaining inventory to your suppliers. You are sure to find more productive ways of employing your money.

In conclusion, it is wise to make cash flow management an active priority in your overall business strategy. Cash flow management may not be flashy or glamorous like some other aspects of business, but "it pays the bills," and your business cannot achieve its greatest potential without concentrated effort in this area.

http://www6.americanexpress.com/smallbusiness/segments/managing_your_cash.asp The American Express Corporation's Small Business Services division operates this site. The information, advice, and help available through this site is incredible! This is easily the best single site on the Web for honing your expertise with cash flow management. Featured articles include "10 Ways to Increase Your Cash Flow," "Cash vs. Accrual Accounting," "Get Paid Quickly," "Managing Debt," and "Projecting Cash Flow," all of which provide good insight into the practical aspects of cash flow management.

http://www.usatoday.com/money/wealth/mmak.htm This excellent site is part of the USA Today network under its "Money" section. It has an archive of many useful articles and helpful tips to help you manage your money better. Especially useful is the related site http://WWW.SMARTCALC.COM/host/usatoday/ which has a host of calculators for varied financial uses. Not only will it do the computations for you based on your input, it also returns graphs and charts which help you better understand the results of your computations.

http://www.quicken.com/small_business/ From the makers of the popular Quicken line of financial software, this site offers advice specifically geared to the small businessperson. A range of topics are covered, and cash flow receives ample treatment.

http://ioma.com/ioma/cfer/ The Cash Flow Enhancement Report is a free on-line newsletter completely dedicated to instructing the reader in the finer points of cash flow management. The most recent version of the report offers advice on the processing of customer remittances and order entry ideas to increase operating efficiency.

http://www.kapitalgrp.com/ The Kapital Investment Services Index Page is a good example of a company dedicated to helping small businesses that are heavy on accounts receivable and short on cash. They will pay you cash at a discounted rate for the rights to your accounts receivable. It is advisable not to find yourself in such dire straits. However, in a pinch, this option is open to you.