September
2004 On-line Tax Planning
Cash Management Basics for Small Business
Operators
If you are in business to make a profit,
successful cash management is perhaps the most important aspect of your
enterprise. Yet, a large number of business owners don’t have a true idea of
what is coming in and what’s leaving their business. Avoid
surprises and double-check on all the bookkeeping basics that you think are so
obvious. It is better to check frequently and
perhaps risk an unwelcome surprise than to procrastinate and get a devastating
shock later. Here are a few back-to-basics
pointers:
- Know your business’s current cash position
and develop a month-by-month annual forecast based on your business plan and
projected sales for the year. Review and
revise the forecast quarterly. Comparing
actual figures to your monthly forecast helps you to make sure that
receivables are being collected in a timely manner, and that you are in a
position to pay suppliers and vendors on time. This
comparison also lets you see if you are making optimum use of your float.
- Look at accounts payable. A
quick analysis will reveal if you are paying vendors too early to capitalize
on your float. Do some vendors offer early
payment discounts? If so, does it make good
business sense to take advantage of them?
- Review your receivables. If
payments received are not keeping pace with cash leaving the business,
determine if you or your staff are too reticent about pursuing slow payers.
Collecting receivables on time and
establishing and applying credit policies consistently are crucial to the
financial health of any business. Non-payment
may signal customer dissatisfaction. If so,
tackle the issue promptly. Listen to the
gripes and try to get partial payment while you resolve the customer’s
problem.
- Make use of your bank. Consolidate
your accounts at one financial institution to gain more leverage if you need
to negotiate a loan. Don’t leave large amounts
of cash parked in a checking account. Make use
of other financial instruments that the bank offers-money market accounts and
other interest-bearing accounts-and arrange for transfers to occur when cash
balances reach a certain ceiling in the checking account.
- Find an institution that cultivates small
business customers. Arrange an appointment and
ask what services, account options, etc. the bank offers to assist small
business owners with cash management.
Finally, if just thinking about reviewing balance sheets gives you a headache,
hire a knowledgeable experienced financial officer or retain a professional
financial consultant. When it comes to cash
management, what you don’t know can capsize your business.
Tax
Planning Archives
For More Information Contact:
Bucheri McCarty & Metz LLP
2366 W. Boulevard
P.O. Box 2147
Kokomo, IN 46904-2147
Telephone: (765) 236-2300
FAX: (765) 236-2333
Internet:
info@bmmcpas.com
