Great Tips on How to Manage Your Cash!

Businesses run into two main problems when managing cash: either they don't know exactly what they have, or they don't know where to put what they do have. Either problem has the potential to minimize profits, decrease the stability of the company in the short-term, and lower ability to invest in the long term.

Looking Around for Extra Cash

Just like finding loose change in your sofa cushions, many businesses have a lot more cash, or the potential for it, than they are aware of. The key to discovering this "hidden" cash lies in having good operational systems in place.

Show Me the Money: Billing, Petty Cash and Legal Entities

Take a look at your billing procedures, inventory process and petty cash receipts. Many businesses do a poor job in this area of cash management. Are you loosing money each month by not billing your customers promptly. Let's face it, that money is accruing interest somewhere; it can be in your account or theirs. How about petty cash? Do you have a monthly system for reimbursing cash spent out of pocket, or is money lost monthly to stray receipts?

How is your business structured? If you never consulted a CPA or business lawyer, you may find significant tax savings simply from switching business entities. For example, if it is appropriate to switch from being a sole proprietor to an LLC, you could avoid double taxation. Since there are liability ramifications, it's always good to consult a professional for these questions.

What to Do with What you Have

The other, more enviable, situation business owners find themselves in is when they have excess cash on hand, but don;t know what to do with it. Should you pay down credit, make long-range investments, buy a bigger sign? 

One key question, if you find yourself in this position, is whether or not the excess cash is predictable at this point in time. Do you have a good grasp on how much and how often cash is flowing in? Or does it tend to fluctuate?  Is this a period of fast growth for your business, or is it slow and steady?

If you are in a period of fast growth, it is advisable to stay away from large investments. During rapid growth, companies are more likely to need instant access to cash funds to manage their changing needs. Keeping the funds in a readily available money market account is one possibility.

However, if your cash flow is highly predictable, a long-term investment like a CD could be a wise move. Just remember, there are usually penalties involved for pulling out of any long-term investment before it is due. Your primary goal should be to find a method that will bring the most to your business. Day trading with the funds would not be the way to go.

Build a Team

Regardless of the cash flow situation you are in, it is always wise to form a team to help you make the wisest decisions with the best possible advice. Perhaps the best use of some of that cash is to invest in professionals: a good CPA, business lawyer and bookkeeper.  It;s always good to be surrounded by people who know more than you do. So maximize what you have with good operations, invest what you have based on your current needs, and ask lots of question in your quest for solid cash management.