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Go with the Flow


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Cash flow—how much money is flowing into and out of your store—is an easy concept to understand. Still, not every owner is aware of the impact that skillful cash management has on net income, probably because the importance of managing revenue is far easier to recognize in some types of businesses than it is in others.

Take home construction, for example. When a builder takes on hundreds of thousands of dollars in short-term debt in order to construct new homes, it’s obvious that he or she must generate substantial, dependable, positive cash flow in a hurry if the business is to survive.

Of course, the situation is not that dramatic for most pet retailers, but skillful cash management is critically important in every form of business activity, regardless of size. Losing control of money has generated more financial headaches for business owners than temporary red figures on the bottom line. Conversely, a sensible cash management system can provide a comfortable and profitable cushion during good times and bad.

Here are eight powerful techniques that may help you smooth out your cash flow and improve your net income right now:

1. Keep every income dollar working for you.

Just as large companies do, it’s important for you to put every revenue dollar to work as soon as you receive it.

If you don’t already have one, open a money market account at your bank and ask to have it linked to your business checking account. That will allow you to make telephone or online transfers between the two accounts.

Then, deposit all of your daily receipts into the money market account, where they will immediately start drawing interest.

Never deposit receipts directly into your checking account. Keep a minimum balance in the checking account and transfer cash by phone or online only as needed to cover checks to be written.

The banks have made this cash management technique so easy to use that there is no reasonable excuse for not using it. While interest rates are anemic now, they are likely to start climbing soon, and you’ll be ready to benefit when they do.

2. Don’t be in a hurry to pay your bills.

There’s good reason why checks are slow to come in from most people who owe you money. It’s because hanging on to cash as long as possible keeps that money available to work for the business.

That’s why it’s important for you to set up a system that allows you to pay your bills just before they come due. That’s an easy thing to do, and it moves you up another rung on the ladder of professional cash management.

Of course, you don’t want to jeopardize your credit standing by paying bills late. Pay your bills just before they are due—not before, not after. It is especially important to avoid late payment on credit card bills because of the oppressive penalties that most banks have put into place to penalize the careless among us.

3. Be aggressive collecting accounts receivable.

If you do any of your own billing, you must never neglect your accounts receivable. You’ve earned that money, you have a right to it, and you need it.

Dunning a late-paying debtor might not be your favorite pastime, but setting up an accounts receivable file and following through on late payments is as important to your financial success as the quality of your product assortment. If your customers learn that you are cavalier about money owed to you, you can be certain they will stretch your patience—and your cash flow—to the limit.

4. Maintain a cash cushion.

Try to keep enough cash in interest-bearing accounts to cover normal operating expenses for three to six months. While that’s not always an easy thing to do, it can provide invaluable peace of mind and self-confidence when revenue is down during a market slowdown. Also, keep in mind that your cash cushion is silently making money for you in those interest-bearing accounts.

5. Develop a personal relationship with your banker.

Handling money is a banker’s job, and most are very good at it. While many small retailers would prefer to keep financial matters “close to the vest,” it’s a smart idea to develop a personal relationship with the manager of your local bank branch. Make an appointment, discuss your financial picture honestly, and you’ll likely get some good ideas and a favorable ear should you ever need a little financial help.

6. Let your computer help you manage your cash flow.

Whether you use one of those heavyweight software packages designed for retailers or you use Quicken or Money on a desktop PC, trust every aspect of your business affairs, including business and personal investments, to your computer. The financial reports and analyses that modern software can produce at the touch of a button can be vitally important management tools for improving cash flow and bottom-line profits.

The most popular software packages designed for small business are infinitely easier to use than they were as recently as a few years ago. More important, they will teach you in dramatic fashion how much you can benefit from a sensible cash management system.

7. Consider leasing.

“The nature of business accounting is such that leasing can be the most sensible approach to many types of capital investment,” said Jay Blumenthal, an accountant in Abington, Pa. “It usually makes sense to lease if you will be able to use the cash in your business activities or in your investments to earn a better return than the cost of leasing.”

Any time you have a capital expenditure, it might pay to consider leasing instead of buying. Talk to your tax advisor about this the next time you’re considering any capital purchase.

8. Consider firing your bank.

Chances are that you have been a victim of merger mania at least once. That’s when you wake up one day to find out that the bank you have grown comfortable with is no longer around. It has merged with a strange new bank that promptly laid claim to your business. Will this new bank, which is larger than the gross national product of some countries, treat you better? Will it exercise economies of scale in order to bring you better and less-expensive services?

Not likely. Experience is showing that some of the huge megabanks resulting from merger mania are raising inefficiency and customer alienation to undreamed-of heights.

This isn’t the work of charlatans intent on robbing you blind; it’s simply the classic symptom of unwieldy bureaucracies grown to a size that defies the best of management intentions. Now, with new laws blurring the line between banks and other financial institutions such as insurance companies and stock brokerages, financial behemoths can only grow even larger.    Fortunately, solving this frustrating problem is relatively painless. Just search out the smallest FDIC member bank in your area and give it a try.

They’ll be delighted to welcome you and your business. They need you, and they will appreciate you. You’ll receive more personal attention from a small neighborhood bank than you will ever get from a financial goliath, with exactly the same insurance protection you receive from the largest banks.

Taken individually, these cash management techniques might seem obvious or even inconsequential. However, when you blend them together in a consistent manner, they will form a significant and permanent contributor to your net income and your economic well-being.


William J. Lynott is a veteran freelance writer who specializes in business management as well as personal and business finance. His work appears regularly in leading trade publications and newspapers as well as consumer magazines including Reader’s Digest, AARP Bulletin and Family Circle.

Financial strategies can vary depending on the specifics of your situation. You should consult with a professional to determine what might be best for your individual needs. 

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