All businesses must deal with the uncertainty of fluctuating sales, inventories and expenses. Follow these practices to moderate the ebb and flow of cash in your business:
• Analyze cash flow. The starting point is discovering where the money’s coming from and where it’s going. Monitor your bank accounts for at least one complete business cycle; then use that information to establish a realistic forecast. This should be done throughout the year to help you understand your seasonal cash needs.
• Monitor receivables. Extending credit to risky customers, failing to identify late payers, inability to collect payment on a timely basis — these practices amplify cash flow problems. Mitigate receivable fluctuations by generating aging reports. Use the report to follow up when payments are late.
• Slow down payments. Prudent cash flow management dictates that you retain cash as long as possible. So pay your vendors on time — not too early. If suppliers offer discounts for early payment, take advantage of cost savings whenever possible or consider negotiating with suppliers to extend payment terms.
• Time large expenses. Start setting aside money in a separate fund for any large payment that comes due during the year. Don’t let big expenditures catch you by surprise.
By taking these steps and endeavoring to smooth out cash fluctuations, proficient managers keep their companies strong throughout the business cycle.
Contact Cataldo Financial with questions, concerns or to discuss your financial situation: 215.491.9566 // jpcatcpa.com