Improving Cash Management

Cash management is crucial to the success of any business, and while most accountants do their best to encourage better cash management most businesses fail to do so. This failure to account for both negatives and pluses in cash flow can create serious problems down the road. If you want to take things into your own hands there are several steps you can take to have better cash management.

1. Determine whether your cash management issues stem from either short-term or long-term problems. For example, if you have plenty of business but the jobs you are getting will not be paid in full for several months then you might need cash in order to pay staff and purchase supplies. This would be considered a short-term problem. Long-term issues involve low inflow of business or a high ratio of debt to income.

2. Take action to solve the issue. For short-term cash flow problems there are several solutions you can consider to remedy the situation. You can do one of the following:

  • Pay suppliers at a later date.
  • Ask your banking institution for a short-term loan.
  • Collect debts owed to you with urgency.
  • Request an overdraft from your bank.

The key here is to analyze your situation and figure out the best point of action to take for your company. The last thing you want is to dig yourself further into debt. You can avoid this by making smart decisions in the present.

Long-term issues require long-term cash management. If you aren’t increasing your sales and your businesses cash flow is at a standstill, then you might need to consider alternative methods of cash management. This can include:

  • Cutting back hours to your staff.
  • Looking for a new, cheaper property for your business location.
  • Find discounts and price reductions in your overhead.
  • Become more efficient with time management.
  • Consider outsourcing.

General cash management issues come down to two things: 1. Your business simply isn’t making enough money, and 2. You are not properly controlling the amount it is making. Through proper analysis and keeping up with both the inflow and outflow of cash you can effectively run your business to make it as successful as possible.