Cash-Flow Management: An OPEN Forum Guide

Do you know where your money's going? Here's how to buckle down on your cash flow.
OPEN Forum Editors, Editors
August 18, 2011

It’s no revelation that when it comes to small business, cash is key. In uncertain times, wise cash-flow management is critical for keeping a clean credit record and positioning your business for growth. Our OPEN Forum experts explain how to take control of managing your cash flow.

Crack the books

It may sound obvious, but organizing and reviewing your financial statements is the first step towards mastering your cash balance. Once you have the numbers in order, the next step is to develop a rigorous forecast to ensure that cash outflows never exceed the incoming flow. Begin by itemizing your fixed costs and then look for patterns in your income and expense calendars. If you run into any doubt about your psychic abilities, tune into this advice from the experts.

Get paid

Make sure that you have an efficient billing and collections system in place to capture all incoming cash. “Any business model that makes it more convenient, or provides more options for your customers to pay you, will help your cash flow,” Ken Kaufman advises. You may want to set up “check lists and automatic calendar reminders to keep track of payments that are due,” Judith Aquino suggests, and don’t be afraid to “bill promptly, follow up on overdue invoices, and quickly collect on overdue accounts.” You can also protect the long-term solvency of your business by diversifying your contracts, including recurring agreements that create predictable income, vetting potential clients and offering incentives for early payments.

Get with the times

It’s true, Tim Berry says, planning a year out is advisable—but don’t expect to be accurate. “You do the financial forecasts so you can set expectations and link spending to sales, but that’s just the start. Review your results every month. Compare actual results to what you had planned. And make corrections.” Similarly, don’t let your forecast roll over blindly, even when your template seems polished. In a volatile market, it’s important to stay ahead of consumer trends and make adjustments according to the economy.

Get help

Effective financial management relies on different qualifications and skills. “In a new business, it is not uncommon for the owner to take on all of these duties, but eventually you’ll need to start delegating,” JoAnne Berg says. Is there a gap in your fiscal expertise? Try to clarify the roles you’ll need to fill as your business grows, and consider hiring a bookkeeper, an accountant or a Chief Financial Operator.

Get a loan...if necessary

According to the American Express OPEN Small Business Monitor, “The greatest concern for one-in-five business owners (23 percent) is the ability to pay bills on time.” Late payments due to a shortage of cash can damage your business relationships, your credit, and in the worst-cases, lead to bankruptcy. “Unfortunately, making a profit doesn’t mean you have cash in the bank,” Tim Berry explains. “If you’re a business that paid two months ago for what you sell today, and is going to get paid for that three months from now, then cash flow is both critical and unintuitive.” Arm yourself against an unexpected burn by keeping cash reserves and planning ahead for a loan.

OPEN Forum Editors, Editors