Small Business Cash Management

cash management
For large businesses, cash management is ranked among the most critical of functions. It is regularly scrutinized by senior executives and administered by entire departments. For small businesses, however, cash management is often relegated to the back seat and largely confined to the timing of payables. But there are many effective cash management practices of big companies that also work for small businesses — strategies and procedures that can help you smooth out cash flow and build your business.



Points to Remember

  1. There are many effective cash management practices of big companies that also work for small businesses — strategies and procedures that can help you smooth out cash flow and build your business.
  2. Understand your cash flow. When putting together your annual budget, make sure to prepare a cash flow projection.
  3. Rather than billing all accounts at the end of the month, send out bills as soon as they become payable. Over time this practice can produce significant savings in the form of reduced "float."
  4. If your receivable default rate is 5% or more, you probably need to improve your bill follow-up procedures.
  5. Monitor inventories on an ongoing basis and avoid maintaining inventories that exceed anticipated sales.
  6. It's a good idea to establish a line of credit early on to help you bridge cash flow gaps.


© 2008, Standard & Poor's, a division of The McGraw-Hill Companies, Inc. All rights reserved.
Re-published with permission.