Archive for the ‘Finance’ Category
How to Improve Your Income and Cash Flow
You cannot have a successful business without a suitable cash flow. If this secret is so well known, why are there so many struggling businesses? When running the daily operations of a business money, or cash flow is a big challenge.
I will present you 7 tips to help you improve your income and cash flow.
1. Cash and Carry. Try to build a business based on a cash and carry system and stay far away from worries about receivables. This is the best business plan, where customers pay when they buy leaving you only with the money.
Collecting money takes a lot of your time, that is why you are almost obligated to come with new options of paying. Set your rules from the start of your business, so your partners and clients will know what you want from them.
2. Collect receivables in a very strict way. Do not let the customers pay you when they remember, go and collect your money in time. To be a good administrator of your business means to have a successful business, so create and apply a set of collecting rules. The longer you wait for receivables, the harder it becomes to collect them. You do not need a rude attitude to collect your cash; all it takes is a strong voice behind a stronger person.
A very useful thing to do is to establish a collecting date after witch you should send out a follow-up statement within 10 to 30 days from the established date. Each business has its own opinions about the perfect time. You should not send follow-up statements sooner then 10 days from the established date. Payment may be delayed by the mail, but no longer then 30 days. If you do not receive the payment within 45 or 60 days, you should notify your customer with a phone-call.
Accounts that go past a 90 day term should be taken to the next step, of collections with a method you established for this situation.
3. Receivables Funding. Apply a program that involves accounts receivable funding. Factoring of accounts receivable is a very good way to keep the cash flowing. Factoring programs are used by businesses that work with government agencies.
If your clients are small businesses or individuals you may find it more difficult to apply an accounts receivable funding program because there are more risks to assume.
4. Suppliers. Negotiate terms with your supplier to help delay the outflow of cash payments. Usually you can delay the payment until the end of the month or even up to 60 days. This allows you a little advantage of working with their money on your projects. Also this delay will end (hopefully) just when your clients pay, so you can pay forward to your vendors.
Some companies prefer the route of forwarding, giving you the opportunity increase your offers without having to invest large amounts of money in more products.
5. Deposits of customers. Have your customers pay a deposit before starting your work. This will help you cover the first costs of the project. More and more companies use this method of funding. It reduces the risks of nonpayment because you already got some upfront money.
6. Permanent credit limit. Implement a credit account through a lender to help you keep a floating line of cash.
7. Save funds. Create a hard times funding source. Most businesses have ups and downs in their activities and an efficient cash management can be quite difficult. Put some money away during your top times to help you in harsh times. We all know this sounds a little bit hard, but it is very easy, take a percentage of your monthly earnings and put it in a savings account.
You may find all of these 7 tips useful for your business, or just 1 or 2, but remember that anything you do to improve your cash flow will raise your business. The worst thing you can do is sit back and hope for the best. See all those CLOSED signs in the shop windows? They hoped and they lost. Be smart, do your best and keep your business at a pro level.
By: Brad Griffin
About the Author:
I will present you 7 tips to help you improve your income and cash flow.
1. Cash and Carry. Try to build a business based on a cash and carry system and stay far away from worries about receivables. This is the best business plan, where customers pay when they buy leaving you only with the money.
Collecting money takes a lot of your time, that is why you are almost obligated to come with new options of paying. Set your rules from the start of your business, so your partners and clients will know what you want from them.
2. Collect receivables in a very strict way. Do not let the customers pay you when they remember, go and collect your money in time. To be a good administrator of your business means to have a successful business, so create and apply a set of collecting rules. The longer you wait for receivables, the harder it becomes to collect them. You do not need a rude attitude to collect your cash; all it takes is a strong voice behind a stronger person.
A very useful thing to do is to establish a collecting date after witch you should send out a follow-up statement within 10 to 30 days from the established date. Each business has its own opinions about the perfect time. You should not send follow-up statements sooner then 10 days from the established date. Payment may be delayed by the mail, but no longer then 30 days. If you do not receive the payment within 45 or 60 days, you should notify your customer with a phone-call.
Accounts that go past a 90 day term should be taken to the next step, of collections with a method you established for this situation.
3. Receivables Funding. Apply a program that involves accounts receivable funding. Factoring of accounts receivable is a very good way to keep the cash flowing. Factoring programs are used by businesses that work with government agencies.
If your clients are small businesses or individuals you may find it more difficult to apply an accounts receivable funding program because there are more risks to assume.
4. Suppliers. Negotiate terms with your supplier to help delay the outflow of cash payments. Usually you can delay the payment until the end of the month or even up to 60 days. This allows you a little advantage of working with their money on your projects. Also this delay will end (hopefully) just when your clients pay, so you can pay forward to your vendors.
Some companies prefer the route of forwarding, giving you the opportunity increase your offers without having to invest large amounts of money in more products.
5. Deposits of customers. Have your customers pay a deposit before starting your work. This will help you cover the first costs of the project. More and more companies use this method of funding. It reduces the risks of nonpayment because you already got some upfront money.
6. Permanent credit limit. Implement a credit account through a lender to help you keep a floating line of cash.
7. Save funds. Create a hard times funding source. Most businesses have ups and downs in their activities and an efficient cash management can be quite difficult. Put some money away during your top times to help you in harsh times. We all know this sounds a little bit hard, but it is very easy, take a percentage of your monthly earnings and put it in a savings account.
You may find all of these 7 tips useful for your business, or just 1 or 2, but remember that anything you do to improve your cash flow will raise your business. The worst thing you can do is sit back and hope for the best. See all those CLOSED signs in the shop windows? They hoped and they lost. Be smart, do your best and keep your business at a pro level.
By: Brad Griffin
About the Author:
Brad Griffin is an Accountant and CPA. After running a successful cash business in the 1990′s I am now a full time options trader sharing my knowledge and success trading options at my website http://www.indexspreadoptionstrading.com.
Ryan
Correcting A Negative Cash Flow
Your business might be heading towards bankruptcy if it has a negative balance on its ‘Net Change’ section of its cash flow statement. Immediate attention is required as failing to correct this negative trend will inevitably cause your business to run out of money.
A Cash Flow Statement has five sections:
1. Beginning Cash Balance
2. Cash In
3. Cash Out
4. Net Change: (Cash In – Cash Out)
5. Ending Cash Balance: (Net Change + Beginning Cash Balance)
In order to correct a negative balance in the ‘Net Change’ section, you only have two options: Increase the amount of cash coming in to your business (revenue), or reduce the cash going out of your business (expenses) as shown below:
To Increase Revenue:
1. Offer discounts: Establish incentives to encourage your clients to pay you in cash. For example, offering a 2% discount on cash purchases might help you receive much-needed cash. In addition, offer discounts to clients who pay their debts within 10 to 30 days; this will reduce the amount people owe you (receivables).
2. Avoid some clients: Avoid clients who are slow payers or who do not pay their debts and focus only on those who pay you on time. This is the fastest way to increase cash collection.
3. Implement a Same-Day Rule: Send invoices to your clients as soon as you render your services. At the same time, cash all the checks that you receive at the end of the same business day.
4. Be careful offering credit: If possible, ask for references or request a credit check.
To Decrease Expenses and How to Reduce Spending:
1. Analyze ALL expenses: By analyzing all your expenses closely, you might identify unnecessary ones.
2. Barter: If you have friends working in other industries, you might use barter instead of cash. For example, if you are in the landscaping business and a friend works at a printing press, you might offer free landscaping services in exchange for printing services.
3. Reduce your Inventory: Inventory is not cash! As long as inventory is not sold, it prevents you from having cash at hand. It is important to have the least amount of inventory possible.
Tip: Cut expenses as much as possible! Have a hard look at the expenses column on your cash flow. Many times, small items that are not essential look insignificant. However, saving just a few dollars per month will really add up.
By: ACCION USA Staff
About the Author:
A Cash Flow Statement has five sections:
1. Beginning Cash Balance
2. Cash In
3. Cash Out
4. Net Change: (Cash In – Cash Out)
5. Ending Cash Balance: (Net Change + Beginning Cash Balance)
In order to correct a negative balance in the ‘Net Change’ section, you only have two options: Increase the amount of cash coming in to your business (revenue), or reduce the cash going out of your business (expenses) as shown below:
To Increase Revenue:
1. Offer discounts: Establish incentives to encourage your clients to pay you in cash. For example, offering a 2% discount on cash purchases might help you receive much-needed cash. In addition, offer discounts to clients who pay their debts within 10 to 30 days; this will reduce the amount people owe you (receivables).
2. Avoid some clients: Avoid clients who are slow payers or who do not pay their debts and focus only on those who pay you on time. This is the fastest way to increase cash collection.
3. Implement a Same-Day Rule: Send invoices to your clients as soon as you render your services. At the same time, cash all the checks that you receive at the end of the same business day.
4. Be careful offering credit: If possible, ask for references or request a credit check.
To Decrease Expenses and How to Reduce Spending:
1. Analyze ALL expenses: By analyzing all your expenses closely, you might identify unnecessary ones.
2. Barter: If you have friends working in other industries, you might use barter instead of cash. For example, if you are in the landscaping business and a friend works at a printing press, you might offer free landscaping services in exchange for printing services.
3. Reduce your Inventory: Inventory is not cash! As long as inventory is not sold, it prevents you from having cash at hand. It is important to have the least amount of inventory possible.
Tip: Cut expenses as much as possible! Have a hard look at the expenses column on your cash flow. Many times, small items that are not essential look insignificant. However, saving just a few dollars per month will really add up.
By: ACCION USA Staff
About the Author:
ACCION USA Staff have written a series of finance related articles. For additional information on related topics, visit http://www.accionusa.org
Luigi Malnar
Cash Flow Management Requires Strategy
“What financial tools are available to protect my business from fluctuations in my revenue cycle since my overhead stays constant week to week?”
This question often arises as DME/HME providers strive to maintain inventory, pay overhead, expand, and even make a profit. To address this issue of “fluctuations in revenue cycle”, you must ascertain whether the financing tools available move concurrently with your revenue stream, since cash flow is determined by your revenue cycle, not your billing cycle.
Loans, including lines of credit and asset based lines, have a common limitation to solving the question. Dollar availability is fixed and cannot be reused until some portion (or all) is paid back. For example, a DME/HME company acquires a loan to upgrade equipment, pay expenses and replace inventory. A new order depletes that inventory significantly. Although payments from Medicare and other carriers may lag, expenses including loan repayment, must be paid and inventory replenished. However, additional credit is not available until the existing line has been repaid. Consequently, unless you have established a credit line sufficient to meet the cash flow requirements you might need in the future, loans won’t work because they do not fluctuate with your revenue cycle or expand with your growth.
Selling stock is another financing tool. However, equity financing addresses long term financial questions and is not typically used as a solution for short-term cash flow problems resulting from revenue cycle fluctuations.
A financial tool that directly follows the revenue cycle is Medical Accounts Receivable (MAR) funding. It provides a cash-flow solution to your working capital needs. Simply put, a specialized funding source purchases your accounts receivable and advances you cash. You deliver your product or service and get paid in 24 – 48 hours. There are virtually no limits on the amount of funding available and no requirement to repay the first MAR funding before you can receive additional funding. The more receivables generated, the more funding that is immediately available to you. This enables your cash flow to match your billing cycle…truly a revenue based financing tool that moves concurrently with your revenue cycle.
By: Michael Koslow
About the Author:
This question often arises as DME/HME providers strive to maintain inventory, pay overhead, expand, and even make a profit. To address this issue of “fluctuations in revenue cycle”, you must ascertain whether the financing tools available move concurrently with your revenue stream, since cash flow is determined by your revenue cycle, not your billing cycle.
Loans, including lines of credit and asset based lines, have a common limitation to solving the question. Dollar availability is fixed and cannot be reused until some portion (or all) is paid back. For example, a DME/HME company acquires a loan to upgrade equipment, pay expenses and replace inventory. A new order depletes that inventory significantly. Although payments from Medicare and other carriers may lag, expenses including loan repayment, must be paid and inventory replenished. However, additional credit is not available until the existing line has been repaid. Consequently, unless you have established a credit line sufficient to meet the cash flow requirements you might need in the future, loans won’t work because they do not fluctuate with your revenue cycle or expand with your growth.
Selling stock is another financing tool. However, equity financing addresses long term financial questions and is not typically used as a solution for short-term cash flow problems resulting from revenue cycle fluctuations.
A financial tool that directly follows the revenue cycle is Medical Accounts Receivable (MAR) funding. It provides a cash-flow solution to your working capital needs. Simply put, a specialized funding source purchases your accounts receivable and advances you cash. You deliver your product or service and get paid in 24 – 48 hours. There are virtually no limits on the amount of funding available and no requirement to repay the first MAR funding before you can receive additional funding. The more receivables generated, the more funding that is immediately available to you. This enables your cash flow to match your billing cycle…truly a revenue based financing tool that moves concurrently with your revenue cycle.
By: Michael Koslow
About the Author:
Sun Capital HealthCare (SCH) specializes in medical accounts receivable funding. SCH is unique being experienced in how the healthcare business works and focused solely on medical accounts receivable (MAR) funding and understands working capital needs, focusing on keeping funding costs as low as possible.
Dorian Osterhouse
Sometimes you Have to Make a Choice on Cash Flow, not Profitabilty
Profit and cash flow are not the same thing. A business can still go broke whilst making a healthy profit just by not having enough financial reserves to meet its commitments.
Cash flow management is the fundamental and essential responsibility of the Business Owner or General Manager. A good cash flow manager reviews cash flow needs for the next week, next month, next quarter … and plans for any large cash need before it becomes a crisis.
Remember that cash flow management is more than just what’s happening with accounts receivable and payable. It also includes sales, raising finance through loans/overdrafts or sale of assets, controlling stock …
Initial Start-up Phase
• Delay taking a salary until your business is generating cash flow from sales
Sales and Marketing
• A regular and dependable volume of sales is a major help to cash flow planning. So systemize your sales and marketing as far as practical to ensure you have a regular level of enquiries and a strong conversion rate.
• Require payment in advance. If that’s not possible invoice quickly on shipment of goods or services.
• Negotiate favorable payment schedules in your terms and conditions – make sure you increase the price to allow for any increased risk and costs.
• Establish late payment penalties as part of your terms and conditions – and enforce them
• Offer rewards for early payment
Accounts Receivables
• Only provide credit after a credit history has been established. Require credit applications and check references
• Have a minimum dollar amount for orders before granting credit
• Have your customers pay by credit card or get authority to debit their bank account. That way you can process payments immediately and you do not have to wait for customers to send the check.
• Stop extending credit to slow payers – you are not a bank
• Make use of credit insurance
• Update your credit control and accounts receivable processes and ensure your team are trained to utilize them. Review your 30/60/90 accounts payable reports at least monthly.
• Stop training your customers to be slow payers – if they are late on paying in accord with agreed terms and conditions then initiate recovery procedures.
Expenses and Accounts Payable
• Pay your bills promptly. After you build a history of payment negotiate extended payment terms – a supplier will often give a good customer 30 to 90 day terms
• Keep overheads to a minimum. Before purchasing something set increased sales goals to justify and fund the expense.
General Cash Management
• Review your cash position at least weekly.
• Review your P&L at least monthly. Get your accountant and financial advisor to show you how to interpret it
• Invest your cash in hand to maximize its earning potential
• Establish a line of credit with your bank before you need it
• To make sure you can move quickly to borrow if needed, keep an eye on your current ratio (assets over liabilities – at least 2:1 is good) and quick ratios (liquid assets divided by current liabilities – should be over 1:1)
• Establish good internal controls for handling cash. Use different people to reconcile then you use to deposit checks or cash.
By: Coach Thom Finn
About the Author:
Cash flow management is the fundamental and essential responsibility of the Business Owner or General Manager. A good cash flow manager reviews cash flow needs for the next week, next month, next quarter … and plans for any large cash need before it becomes a crisis.
Remember that cash flow management is more than just what’s happening with accounts receivable and payable. It also includes sales, raising finance through loans/overdrafts or sale of assets, controlling stock …
Initial Start-up Phase
• Delay taking a salary until your business is generating cash flow from sales
Sales and Marketing
• A regular and dependable volume of sales is a major help to cash flow planning. So systemize your sales and marketing as far as practical to ensure you have a regular level of enquiries and a strong conversion rate.
• Require payment in advance. If that’s not possible invoice quickly on shipment of goods or services.
• Negotiate favorable payment schedules in your terms and conditions – make sure you increase the price to allow for any increased risk and costs.
• Establish late payment penalties as part of your terms and conditions – and enforce them
• Offer rewards for early payment
Accounts Receivables
• Only provide credit after a credit history has been established. Require credit applications and check references
• Have a minimum dollar amount for orders before granting credit
• Have your customers pay by credit card or get authority to debit their bank account. That way you can process payments immediately and you do not have to wait for customers to send the check.
• Stop extending credit to slow payers – you are not a bank
• Make use of credit insurance
• Update your credit control and accounts receivable processes and ensure your team are trained to utilize them. Review your 30/60/90 accounts payable reports at least monthly.
• Stop training your customers to be slow payers – if they are late on paying in accord with agreed terms and conditions then initiate recovery procedures.
Expenses and Accounts Payable
• Pay your bills promptly. After you build a history of payment negotiate extended payment terms – a supplier will often give a good customer 30 to 90 day terms
• Keep overheads to a minimum. Before purchasing something set increased sales goals to justify and fund the expense.
General Cash Management
• Review your cash position at least weekly.
• Review your P&L at least monthly. Get your accountant and financial advisor to show you how to interpret it
• Invest your cash in hand to maximize its earning potential
• Establish a line of credit with your bank before you need it
• To make sure you can move quickly to borrow if needed, keep an eye on your current ratio (assets over liabilities – at least 2:1 is good) and quick ratios (liquid assets divided by current liabilities – should be over 1:1)
• Establish good internal controls for handling cash. Use different people to reconcile then you use to deposit checks or cash.
By: Coach Thom Finn
About the Author:
Thom Finn allows reproduction of his articles with credit and a link back to http://www.coachmybiz.com/thomfinn.asp.
Coach Thom of works with small business owners, many of whom ignore the work they must do first on areas such as cash flow. Although he is not exactly well loved by his clients, he does however have one of the highest client retention rates in all of North American.
Byron Neaves
Experiencing Cash Flow Problems? Invoice Discounting Could be the Answer
More and more modern businesses are proving the importance of invoice discounting. Whether these businesses are small start-ups or rapidly expanding, capital is the heart of every business and cash flow its lifeline.
As a company providing products or services to other businesses on a credit basis, you may already be experiencing cash flow problems. Even if you have 30 day terms, you might find your clients are working to varying payment terms of 60 days or even 90 days, it’s easy for your payments to become tied up in the sales ledger. This can make affording your own expenditures difficult. Borrowing from the bank to cover your finances may seem like the best option, but it’s often the most heavily administrated and time consuming, let alone the least cost-effective.
In these instances, a specialist finance broker becomes essential. A good broker can help identify the problems and tailor solutions to your needs with the right finance house that best suits your style of business. One solution they can guide you through is invoice discounting.
With an invoice discounting model tailored to your specific needs, a profitable business can draw money against its invoices immediately they are issues (as well as in the first instance get a payment from outstanding invoices. A discounter assesses what percentage of the outstanding sales ledger can be advanced, depending on your business up to 90%. Each month you will pay back more or less depending on the activity of your cash flow, with an interest rate based on the net amount of the advance.
All that is required of you is the continued administration of your sales ledger and debt collecting. This can prove beneficial when monitoring how much you can repay each month. Invoice discounting is an alternative, cost effective way of improving cash flow that’s flexible enough to support your fluctuating finances on a monthly basis.
Another benefit of invoice discounting is the support it provides you while working with clients of varying payment terms. invoice discounting allows you to build strong relationships with your client base without compromising on your monthly financing. Your customers don’t even need to know such a system is in place.
And as well as improving customer relations, invoice discounting can significantly increase your available funds, improving your spending power. This can be a huge advantage when it comes to negotiations and prompt payments with suppliers – essential for small businesses looking to grow.
So what are the costs involved in invoice discounting and how do they compare to other forms of borrowing?
Alongside an administration fee based on your turnover and a monthly charge for your discounter, you’ll need to pay back interest on the advance. This interest rate is often comparable with that of an overdraft, ranging from 1.5 per cent over base rate to 3 per cent over base rate and calculated on a daily basis. And, with a number of independent financers and banks both offering invoice discounting, the rates are very competitive.
Unlike an overdraft, which may need to be renegotiated or give your business a poor credit rating, invoice discounting can help keep your business in credit. With the help of the right finance broker, sourcing the best discounter for your business is even more straightforward.
If you have an annual sales turnover averaging £200,000 or more and a minimum net worth of £25,000, with effective credit history and profitability in your business, invoice discounting could be the best step to solving your cash flow problems.
To find out more about invoice discounting for your business, contact Martingales for a free assessment. Martingales specialise in taking the strain out of corporate cash flow with bespoke finance solutions and invoice discounting.
By: Peter Rufus
About the Author:
As a company providing products or services to other businesses on a credit basis, you may already be experiencing cash flow problems. Even if you have 30 day terms, you might find your clients are working to varying payment terms of 60 days or even 90 days, it’s easy for your payments to become tied up in the sales ledger. This can make affording your own expenditures difficult. Borrowing from the bank to cover your finances may seem like the best option, but it’s often the most heavily administrated and time consuming, let alone the least cost-effective.
In these instances, a specialist finance broker becomes essential. A good broker can help identify the problems and tailor solutions to your needs with the right finance house that best suits your style of business. One solution they can guide you through is invoice discounting.
With an invoice discounting model tailored to your specific needs, a profitable business can draw money against its invoices immediately they are issues (as well as in the first instance get a payment from outstanding invoices. A discounter assesses what percentage of the outstanding sales ledger can be advanced, depending on your business up to 90%. Each month you will pay back more or less depending on the activity of your cash flow, with an interest rate based on the net amount of the advance.
All that is required of you is the continued administration of your sales ledger and debt collecting. This can prove beneficial when monitoring how much you can repay each month. Invoice discounting is an alternative, cost effective way of improving cash flow that’s flexible enough to support your fluctuating finances on a monthly basis.
Another benefit of invoice discounting is the support it provides you while working with clients of varying payment terms. invoice discounting allows you to build strong relationships with your client base without compromising on your monthly financing. Your customers don’t even need to know such a system is in place.
And as well as improving customer relations, invoice discounting can significantly increase your available funds, improving your spending power. This can be a huge advantage when it comes to negotiations and prompt payments with suppliers – essential for small businesses looking to grow.
So what are the costs involved in invoice discounting and how do they compare to other forms of borrowing?
Alongside an administration fee based on your turnover and a monthly charge for your discounter, you’ll need to pay back interest on the advance. This interest rate is often comparable with that of an overdraft, ranging from 1.5 per cent over base rate to 3 per cent over base rate and calculated on a daily basis. And, with a number of independent financers and banks both offering invoice discounting, the rates are very competitive.
Unlike an overdraft, which may need to be renegotiated or give your business a poor credit rating, invoice discounting can help keep your business in credit. With the help of the right finance broker, sourcing the best discounter for your business is even more straightforward.
If you have an annual sales turnover averaging £200,000 or more and a minimum net worth of £25,000, with effective credit history and profitability in your business, invoice discounting could be the best step to solving your cash flow problems.
To find out more about invoice discounting for your business, contact Martingales for a free assessment. Martingales specialise in taking the strain out of corporate cash flow with bespoke finance solutions and invoice discounting.
By: Peter Rufus
About the Author:
Peter Rufus
Commercial Director
Martingales
www.martingales.org.uk
Sanford Skrocki
Manage Your Business Cash Flow
In any medium size business, a very high rate of attention is concentrated on the cash flow.
Why?
Because the cash flow is the heart of the business, and as any other “heart”, it sustains the business.
Business owners realize the importance of a positive cash balance in their business. In this positive situation all decision like staff, systems, marketing, finances are much easier to take. The investment has been made, the forecast of profit is very good, and the business already has some funds available.
Anyway, the management of cash remains the biggest problem in a business.
The key aspects of cash management are the cash receivable from customers for sales, services and so on and cash payable to suppliers for payments. In many situations this funds that cycle around you are the most important elements of the cash flow.
This is a fact that is recognized by most business owners, however they are not always prompt in taking some measures to properly control these cash movements.
For many small or medium businesses, credit management is a part-time activity or may not exist at all. The opportunist debtor will use this against you, he will seize the chance to delay terms of his debt payments. This is a common practice on the business market because both parties accept that payment terms will always be delayed.
Why is such an environment accepted by business owners?
None of the business owners will underestimate the need to have cash inflows, however due the lack of preparation in collecting the debt or the fear of losing a potential customer timeliness of those inflows will all too often be delayed.
A delay in securing payments on time will have a strong impact over the cash flow, will increase the working capital, and increase costs. The often overlooked costs of late payment can destroy the future of your business.
A short fall of the cash flow may risk the ability of the business to pay it’s creditors with the stabilized terms of contracts.
The creditors should lax their credit management and delay settlement until such time that the debtor cash has been received.
But not all creditors are prepared to accept this kind of settlements. credit limits may be reduced or withdrawn and until settlement is done deliveries of new orders may be delayed. In these situations the business owners must find other funding sources to cover the timing difference between cash payments to creditors and late cash receipts from debtors.
A single situation may be manageable, but repeated may become a heavy weight for the business. As the business grows the cash flow amplifies and the gaps that appear are bigger and bigger.
All business owners agree that without cash there won’t be any business, however, its continual recognition in the daily management of the business is not always so evident.
An unmanaged cash flow environment will increase the time spent by the business owner working “in” the business on cash management activities. Time should be devoted to working “on” the business generating growth to secure its future.
By: Brad Griffin
About the Author:
Why?
Because the cash flow is the heart of the business, and as any other “heart”, it sustains the business.
Business owners realize the importance of a positive cash balance in their business. In this positive situation all decision like staff, systems, marketing, finances are much easier to take. The investment has been made, the forecast of profit is very good, and the business already has some funds available.
Anyway, the management of cash remains the biggest problem in a business.
The key aspects of cash management are the cash receivable from customers for sales, services and so on and cash payable to suppliers for payments. In many situations this funds that cycle around you are the most important elements of the cash flow.
This is a fact that is recognized by most business owners, however they are not always prompt in taking some measures to properly control these cash movements.
For many small or medium businesses, credit management is a part-time activity or may not exist at all. The opportunist debtor will use this against you, he will seize the chance to delay terms of his debt payments. This is a common practice on the business market because both parties accept that payment terms will always be delayed.
Why is such an environment accepted by business owners?
None of the business owners will underestimate the need to have cash inflows, however due the lack of preparation in collecting the debt or the fear of losing a potential customer timeliness of those inflows will all too often be delayed.
A delay in securing payments on time will have a strong impact over the cash flow, will increase the working capital, and increase costs. The often overlooked costs of late payment can destroy the future of your business.
A short fall of the cash flow may risk the ability of the business to pay it’s creditors with the stabilized terms of contracts.
The creditors should lax their credit management and delay settlement until such time that the debtor cash has been received.
But not all creditors are prepared to accept this kind of settlements. credit limits may be reduced or withdrawn and until settlement is done deliveries of new orders may be delayed. In these situations the business owners must find other funding sources to cover the timing difference between cash payments to creditors and late cash receipts from debtors.
A single situation may be manageable, but repeated may become a heavy weight for the business. As the business grows the cash flow amplifies and the gaps that appear are bigger and bigger.
All business owners agree that without cash there won’t be any business, however, its continual recognition in the daily management of the business is not always so evident.
An unmanaged cash flow environment will increase the time spent by the business owner working “in” the business on cash management activities. Time should be devoted to working “on” the business generating growth to secure its future.
By: Brad Griffin
About the Author:
Brad Griffin is an Accountant and CPA. I am now sharing my cash flow knowledge and success trading options at my website http://www.indexspreadoptionstrading.com.
Nick Lee
Cash Flow Management Issues Relating To Funding And Investment In A Credit Crunch
There is a fundamental difference between cash flow and net profit. Net profit is the bottom line of the profit and loss account measuring the net growth in financial value. Cash is the business liquidity and closely related to the changes in the value of the current business assets in the balance sheet representing the amount of money the business has at its disposal to generate further business.
Stock control management
The objective is to reduce the level of stock which uses working capital within the business.
Stock control is a major potential area where every business can become more efficient in its cash requirements. Stock comprises of four main elements, raw materials, work in progress, finished goods and consumable stores.. Each area can be managed to reduce the working capital requirement with an appropriate stock management system being adopted.
Raw material stocks can be reduced by setting a just in time stock control policy, negotiating better delivery schedules and reviewing order quantities with a view to reducing the value of stock held before it is required for production or sales.
Work in Progress is mainly a manufacturing area and governed by the manufacturing process however a review of the policies can produce efficiencies if excess products are left lying around waiting to be finished or excess materials are on the shop floor waiting to be used.
Standard levels of finished stock should be set to satisfy the requirement to supply all customers on time but avoid excess stock. Delivery schedules might be reviewed to ensure delivery times can be shortened to reduce the requirement for higher stock levels. Ideally the stock should come in one door and be invoiced out the other door the same day.
In some businesses consumable stores may be significant and where any significant working capital investment is required the policy should be reviewed to save cash by introducing stock control measures.
Profit margin management
The objective is to sell more cash flow friendly products.
Given a range of products within a business the gross profit and stock requirements and funding requirements may be variable. During a credit crunch the products offering the highest gross profit, fastest turn round and most economic use of working capital would offer the best options to reduce the credit crunch effect.
A sound management policy would be to review all products in terms of the working capital requirements and levels of gross profit margins with a view to concentrating sales growth in these product areas.
Financial investment management
The objective is to reduce the draining effect of capital investment in the business to protect the working capital requirements.
There are many cash flow issues in this area but consideration may be given to how fixed asset purchases are financed. In days of the credit crunch it may be safer to lease or buy major items on hire purchase than to buy outright. Different and alternate methods of financing investments can broaden the funding options open to a business and reduce the strain on working capital.
Consideration might be given to delaying the purchase of non essential renewable assets. For example the business may have a policy to replace the delivery vehicle or representatives car every three years. Delaying the replacement by six months saves valuable cash resources and protects the cash flow.
Consideration in larger companies with numerous investment projects may be to prioritise the fastest cash generating projects. Capital investment often requires high initial investment which is repaid slowly over a period of years and a reduction in approval rates for such projects can have significant impact on liquidity.
During the early days of a credit crunch and potential recession consideration should be given to reviewing all non or low performing areas of the business with a view to selling these business areas or assets ensuring they do not become a drain on the cash resources but instead produce a positive cash flow the remaining parts of the business can use to generate higher profits.
Funding management
The objective is to achieve at lowest interest rates possible adequate funding for all the business cash flow, working capital and investment requirements.
Planning is essential to make sufficient arrangements well before the cash is required t6o enable a satisfactory level of funding at an acceptable rate. Negotiating when a business runs out of cash is the very worst time to negotiate funding as it will cost more and may not be obtained at all.
There are benefits to reviewing the number of sources of finance and funding available to the business and the interest being charged. Relying upon one funding source may be putting all the eggs in one basket. With a range of potential funding sources smaller amounts can be raised with each the sum often being higher than might be available from a single source.
Alternate sources may include leasing and financing companies, banks and specialist lenders such as stock finance businesses and factoring companies. One disastrous source a small business should avoid at all costs would be to finance the working capital through credit cards where the interest rate could be so high it could cripple the business.
By: Terry Cartwright
About the Author:
Stock control management
The objective is to reduce the level of stock which uses working capital within the business.
Stock control is a major potential area where every business can become more efficient in its cash requirements. Stock comprises of four main elements, raw materials, work in progress, finished goods and consumable stores.. Each area can be managed to reduce the working capital requirement with an appropriate stock management system being adopted.
Raw material stocks can be reduced by setting a just in time stock control policy, negotiating better delivery schedules and reviewing order quantities with a view to reducing the value of stock held before it is required for production or sales.
Work in Progress is mainly a manufacturing area and governed by the manufacturing process however a review of the policies can produce efficiencies if excess products are left lying around waiting to be finished or excess materials are on the shop floor waiting to be used.
Standard levels of finished stock should be set to satisfy the requirement to supply all customers on time but avoid excess stock. Delivery schedules might be reviewed to ensure delivery times can be shortened to reduce the requirement for higher stock levels. Ideally the stock should come in one door and be invoiced out the other door the same day.
In some businesses consumable stores may be significant and where any significant working capital investment is required the policy should be reviewed to save cash by introducing stock control measures.
Profit margin management
The objective is to sell more cash flow friendly products.
Given a range of products within a business the gross profit and stock requirements and funding requirements may be variable. During a credit crunch the products offering the highest gross profit, fastest turn round and most economic use of working capital would offer the best options to reduce the credit crunch effect.
A sound management policy would be to review all products in terms of the working capital requirements and levels of gross profit margins with a view to concentrating sales growth in these product areas.
Financial investment management
The objective is to reduce the draining effect of capital investment in the business to protect the working capital requirements.
There are many cash flow issues in this area but consideration may be given to how fixed asset purchases are financed. In days of the credit crunch it may be safer to lease or buy major items on hire purchase than to buy outright. Different and alternate methods of financing investments can broaden the funding options open to a business and reduce the strain on working capital.
Consideration might be given to delaying the purchase of non essential renewable assets. For example the business may have a policy to replace the delivery vehicle or representatives car every three years. Delaying the replacement by six months saves valuable cash resources and protects the cash flow.
Consideration in larger companies with numerous investment projects may be to prioritise the fastest cash generating projects. Capital investment often requires high initial investment which is repaid slowly over a period of years and a reduction in approval rates for such projects can have significant impact on liquidity.
During the early days of a credit crunch and potential recession consideration should be given to reviewing all non or low performing areas of the business with a view to selling these business areas or assets ensuring they do not become a drain on the cash resources but instead produce a positive cash flow the remaining parts of the business can use to generate higher profits.
Funding management
The objective is to achieve at lowest interest rates possible adequate funding for all the business cash flow, working capital and investment requirements.
Planning is essential to make sufficient arrangements well before the cash is required t6o enable a satisfactory level of funding at an acceptable rate. Negotiating when a business runs out of cash is the very worst time to negotiate funding as it will cost more and may not be obtained at all.
There are benefits to reviewing the number of sources of finance and funding available to the business and the interest being charged. Relying upon one funding source may be putting all the eggs in one basket. With a range of potential funding sources smaller amounts can be raised with each the sum often being higher than might be available from a single source.
Alternate sources may include leasing and financing companies, banks and specialist lenders such as stock finance businesses and factoring companies. One disastrous source a small business should avoid at all costs would be to finance the working capital through credit cards where the interest rate could be so high it could cripple the business.
By: Terry Cartwright
About the Author:
Terry Cartwright is a qualified accountant at DIY Accounting designing UK Accounting Software on excel spreadsheets providing complete Bookkeeping solutions for small to medium sized companies plus accounting packages producing automated copies of the Self Assessment Tax Return for self employed business.
Larry Scoleri
Get Cash Flow for a Structured Settlements
There are various companies that offer a lump sum payment in exchange for cash flow streams generated by structured settlements. Beneficiaries of structured settlements often have to sell settlements when faced with an urgent or near-term liquidity need.
The process of selling structured settlements begins with understanding one’s requirements and the immediacy of the need. This can be done with the help of a financial advisor. In fact, in several states in the U.S, it is mandatory to take legal advice before selling a structured settlement. Brokers who are knowledgeable about the court procedures involved in the sale of a structured settlement can be of great help. Brokers are in contact with numerous settlement companies and upon understanding a seller’s unique requirements they can guide the seller to the most appropriate settlement company. Either with the help of brokers or by searching online, one can select a financial institution that appears to offer the best price for the structured settlement at minimum cost and in as less time as possible. Sellers should also check the prospective buyer’s credentials, the rate of interest they offer, and their record for prompt payments.
Sellers are usually required to fill an application form that provides the buyer with necessary information such as amount required, nature of the structured settlement, and the insurance company. Upon approval of the application, the buyer forwards closing documents to the seller. These should be studied and understood by the seller with support from his financial advisor. Once the provisions mentioned in the closing documents are met, the funds are released to the seller. The insurance company is made aware of changes in ownership of the structured settlement. The receipt of cash flow by the seller is subject to court approval. The court assesses the seller’s circumstances and then decides whether the sale is in the best interests of the seller and his dependents. A court approved sale of structured settlements is tax-free for the buyer and seller.
The cash flow received in exchange for the structured settlement is minus the buyer’s fees and other expenses such as broker commissions, application fees, and legal expenses. These costs are not out-of-pocket expenses for the seller nevertheless they should be carefully considered with respect to different buyers and the maximum amount that can be obtained by the sale of a minimum number of structured settlements.
By: Frank Dotson
About the Author:
The process of selling structured settlements begins with understanding one’s requirements and the immediacy of the need. This can be done with the help of a financial advisor. In fact, in several states in the U.S, it is mandatory to take legal advice before selling a structured settlement. Brokers who are knowledgeable about the court procedures involved in the sale of a structured settlement can be of great help. Brokers are in contact with numerous settlement companies and upon understanding a seller’s unique requirements they can guide the seller to the most appropriate settlement company. Either with the help of brokers or by searching online, one can select a financial institution that appears to offer the best price for the structured settlement at minimum cost and in as less time as possible. Sellers should also check the prospective buyer’s credentials, the rate of interest they offer, and their record for prompt payments.
Sellers are usually required to fill an application form that provides the buyer with necessary information such as amount required, nature of the structured settlement, and the insurance company. Upon approval of the application, the buyer forwards closing documents to the seller. These should be studied and understood by the seller with support from his financial advisor. Once the provisions mentioned in the closing documents are met, the funds are released to the seller. The insurance company is made aware of changes in ownership of the structured settlement. The receipt of cash flow by the seller is subject to court approval. The court assesses the seller’s circumstances and then decides whether the sale is in the best interests of the seller and his dependents. A court approved sale of structured settlements is tax-free for the buyer and seller.
The cash flow received in exchange for the structured settlement is minus the buyer’s fees and other expenses such as broker commissions, application fees, and legal expenses. These costs are not out-of-pocket expenses for the seller nevertheless they should be carefully considered with respect to different buyers and the maximum amount that can be obtained by the sale of a minimum number of structured settlements.
By: Frank Dotson
About the Author:
Frank Dotson recommends that you visit http://www.structured-settlements-guide.com/2006/03/the_skinny_on_g.html for more information on getting cash flow for structured settlement.
Aisha Clontz
Improve Cash Flow by Managing Stock Levels
When times get hard and 2008 has all the hallmarks of being a difficult financial year control over cash flow is critical. The best defence in these days of the credit crunch is to introduce and monitor cash flow liquidity at the earliest stage of which stock levels and inventory control can be crucial elements.
Larger businesses have accountants producing financial information who also review and monitor all major financial influences within the business. Smaller businesses often do not have these finance details and financial controls and put themselves at risk since as the credit crunch tightens the businesses that are most at risk are those which fail to manage their liquidity until it is too late.
Major significant areas where businesses produce or purchase goods for resale are the stock levels. Examine each area and typr of stores categories such as work in progress and raw materials to ensure both minimum stock levels are always present but excess stock levels are reduced at all stages.
All stock has to be financed and funded from either the working capital of the business or external funding. High stock levels and the extent to which those stock levels are funded externally is a consideration while if the stock is funded internally and has no financing cost to the business then hogh stock levels are fine if they have resulted from high buying discounts. When the value of stock has to be financed then it is important the stock levels are managed to use up the minimum financial resources.
Stock management is not just about reducing the volume but is about always having just enough for the level of sales without stock shortages. Businesses employing accountants set a stock policy while this duty is left to the business owner in small businesses.
The first step would be to carry out a stock audit through a physical stocktaking and produce financial statistics of the sales volume for each item in the stores. Where appropriate the accounting system adopted should produce easily accessible stock figures so the situation can be constantly monitored.
A monitoring system even if rudimentary is important and can provide early warning of abnormal losses through wastage and even theft. Valuable stock especially with a potential resale value should be kept separately, protected and access restricted.
Armed with the stock levels and turnover figures policies can then be developed to manage the stock investment by initially eliminating or reducing purchase orders for those items over stocked and increasing the stock levels of those items under stocked to maintain maximum sales volume by eliminating shortages.
In addition other factors affecting stock levels include purchase order quantities and delivery schedules and reliability of the supply chain. By ordering less more frequently and arranging better delivery schedules stock quantities can be reduced saving valuable cash resources and improving liquidity without reducing sales.
Commercially, minimum stock levels are not always prudent. Advantage has to be taken of bargains, volume discounts and the risks of stock shortages but these decisions should always be taken based upon the financial advantages of over stocking outweighing the cost of financing that stock. High stock values affect cash flow.
Sales policy can also have a strong influence on stock levels and should be managed with a view not just to achieving maximum sales but also to minimise the business financial investment in working capital. Sales can achieve this by directing policy towards a higher turnover of goods, selling goods bought at bargain prices faster and clearing slow moving items.
Sales policy can be directed to move goods faster when such items have been obtained at lower prices but often in higher volumes to take advantage of the cheaper price but only by also selling such items quickly can cash flow and liquidity be protected.
Every business has slow moving items and products that become obsolete. Such items are using valuable cash resources required in a credit crunch and turning such stock into cash benefits the business and provides additional funding for more profitable items.
Delivery policy affects stock levels and might be reviewed. Delivering faster and perhaps outsourcing the delivery function can get the goods to the clients faster. That reduces the stock levels and should result in cash being received faster as the customers can be invoiced earlier improving cash flow.
Retail businesses often have limited policies of stock quantities other than filling the shelves while retaining a back room full of goods which are not available for sale until displayed. Every stock item in the back room is costing money while sitting there. When stock is purchased at low prices or can be sold before the next shipment then the cost is of course justified.
Every different type of business has its own inventory requirements with many different factors being applicable. The important message is not what should be done about this item or that item but the fact that there is an overall stock policy appropriate to the type of business to enable the business to function at maximum volume with minimum financial investment in stock.
Reviewing stock and inventory policy can reduce the cash flow and working capital requirements of business. Better cash flow and liquidity improves buying policy by being less restrictive enabling advantage to be taken of market conditions and offers as they arise to increase overall profitability.
A lack of inventory control can result in a fire sale operation should cash flow and liquidity be so strained that the financial cash resources of the business run out. Good stock control can avoid such drastic measures.
By: Terry Cartwright
About the Author:
Larger businesses have accountants producing financial information who also review and monitor all major financial influences within the business. Smaller businesses often do not have these finance details and financial controls and put themselves at risk since as the credit crunch tightens the businesses that are most at risk are those which fail to manage their liquidity until it is too late.
Major significant areas where businesses produce or purchase goods for resale are the stock levels. Examine each area and typr of stores categories such as work in progress and raw materials to ensure both minimum stock levels are always present but excess stock levels are reduced at all stages.
All stock has to be financed and funded from either the working capital of the business or external funding. High stock levels and the extent to which those stock levels are funded externally is a consideration while if the stock is funded internally and has no financing cost to the business then hogh stock levels are fine if they have resulted from high buying discounts. When the value of stock has to be financed then it is important the stock levels are managed to use up the minimum financial resources.
Stock management is not just about reducing the volume but is about always having just enough for the level of sales without stock shortages. Businesses employing accountants set a stock policy while this duty is left to the business owner in small businesses.
The first step would be to carry out a stock audit through a physical stocktaking and produce financial statistics of the sales volume for each item in the stores. Where appropriate the accounting system adopted should produce easily accessible stock figures so the situation can be constantly monitored.
A monitoring system even if rudimentary is important and can provide early warning of abnormal losses through wastage and even theft. Valuable stock especially with a potential resale value should be kept separately, protected and access restricted.
Armed with the stock levels and turnover figures policies can then be developed to manage the stock investment by initially eliminating or reducing purchase orders for those items over stocked and increasing the stock levels of those items under stocked to maintain maximum sales volume by eliminating shortages.
In addition other factors affecting stock levels include purchase order quantities and delivery schedules and reliability of the supply chain. By ordering less more frequently and arranging better delivery schedules stock quantities can be reduced saving valuable cash resources and improving liquidity without reducing sales.
Commercially, minimum stock levels are not always prudent. Advantage has to be taken of bargains, volume discounts and the risks of stock shortages but these decisions should always be taken based upon the financial advantages of over stocking outweighing the cost of financing that stock. High stock values affect cash flow.
Sales policy can also have a strong influence on stock levels and should be managed with a view not just to achieving maximum sales but also to minimise the business financial investment in working capital. Sales can achieve this by directing policy towards a higher turnover of goods, selling goods bought at bargain prices faster and clearing slow moving items.
Sales policy can be directed to move goods faster when such items have been obtained at lower prices but often in higher volumes to take advantage of the cheaper price but only by also selling such items quickly can cash flow and liquidity be protected.
Every business has slow moving items and products that become obsolete. Such items are using valuable cash resources required in a credit crunch and turning such stock into cash benefits the business and provides additional funding for more profitable items.
Delivery policy affects stock levels and might be reviewed. Delivering faster and perhaps outsourcing the delivery function can get the goods to the clients faster. That reduces the stock levels and should result in cash being received faster as the customers can be invoiced earlier improving cash flow.
Retail businesses often have limited policies of stock quantities other than filling the shelves while retaining a back room full of goods which are not available for sale until displayed. Every stock item in the back room is costing money while sitting there. When stock is purchased at low prices or can be sold before the next shipment then the cost is of course justified.
Every different type of business has its own inventory requirements with many different factors being applicable. The important message is not what should be done about this item or that item but the fact that there is an overall stock policy appropriate to the type of business to enable the business to function at maximum volume with minimum financial investment in stock.
Reviewing stock and inventory policy can reduce the cash flow and working capital requirements of business. Better cash flow and liquidity improves buying policy by being less restrictive enabling advantage to be taken of market conditions and offers as they arise to increase overall profitability.
A lack of inventory control can result in a fire sale operation should cash flow and liquidity be so strained that the financial cash resources of the business run out. Good stock control can avoid such drastic measures.
By: Terry Cartwright
About the Author:
Terry Cartwright is a qualified accountant designing Accounting Software on excel spreadsheets providing complete Small Business Accounting Software solutions for small to medium sized business with simple Bookkeeping to assist financial control through automated tax returns
Meghan Ronnfeldt
Understanding Cash Flow Statement – How To Make And Read Cash Flow Statement
The cash flow statement sometimes is another financial statement that investors should become familiar with. It is another tool for managers and investors that shows how changes in the balance sheet and income affect cash. The cash flows are broken down into three parts: operating activities, investing activities, financing activities and the cash flows from each source. These changes shown on the cash flow statement are useful in determining the immediate health of the firm and its ability to function as an ongoing concern.
Operating activities are the production, sales, and delivery of the company’s products. These are the regular day to day activities of the firm that put it into business in the first place. This category will include figures like depreciation, taxes, and amortization of intangible assets (things like brand-name recognition).
Investing activities include the purchase and sale of long-term assets. Items here will include capital expenditures and investments. All investments made on behalf of the firm are including here. Purchases of plant, property and equipment are included as capital expenditures.
The financing activities represent the equity of the firm. This is the money owned by outside entities such as banks and shareholders as well as the payments to these owners of the company (dividends). If the company made any purchases or sales of its own stock, it will be included here.
The cash flow statement will contain a bottom-line, the net increase (or decrease) in cash. If a company is negative in cash, it will have issues paying its short-term debts and have difficulty continuing to do business. That’s not to say it will definitely fail, but will have to find other ways to generate cash to pay its bills. Remember, this statement does not detail income; just how much cash the firm has on hand. A sample cash flow statement is pictured below.
NOTE: For image sample of a cashflow statement, go here http://www.tradingsphere.com/the-cash-flow-statement
By: Mike Ashley
About the Author:
Operating activities are the production, sales, and delivery of the company’s products. These are the regular day to day activities of the firm that put it into business in the first place. This category will include figures like depreciation, taxes, and amortization of intangible assets (things like brand-name recognition).
Investing activities include the purchase and sale of long-term assets. Items here will include capital expenditures and investments. All investments made on behalf of the firm are including here. Purchases of plant, property and equipment are included as capital expenditures.
The financing activities represent the equity of the firm. This is the money owned by outside entities such as banks and shareholders as well as the payments to these owners of the company (dividends). If the company made any purchases or sales of its own stock, it will be included here.
The cash flow statement will contain a bottom-line, the net increase (or decrease) in cash. If a company is negative in cash, it will have issues paying its short-term debts and have difficulty continuing to do business. That’s not to say it will definitely fail, but will have to find other ways to generate cash to pay its bills. Remember, this statement does not detail income; just how much cash the firm has on hand. A sample cash flow statement is pictured below.
NOTE: For image sample of a cashflow statement, go here http://www.tradingsphere.com/the-cash-flow-statement
By: Mike Ashley
About the Author:
Brenton Deslaurier