If profits are up and the projections look good for the next month or two, should you kick back and relax? Maybe not. No matter how positive other signs may be, if you’re not keeping a close eye on your company’s cash flow, things could go haywire.

Even a temporary crunch resulting in late debt payments could cause your credit rating to fall and your cost of borrowing to rise. If you miss a loan payment or two, the lender might even call the loan. Here are some suggestions to help you maintain a healthy cash flow.

Develop a Cash Flow Budget

Projecting inflows and outflows on a month-to-month or week-to-week basis provides a critical snapshot of your business’s cash position and shows whether you’ll have enough cash on hand to meet your needs.

Improve Delivery

This may seem like a no-brainer, but if it’s been awhile since you evaluated operational procedures, it might be time to take another look. The more errors you can avoid, the better. New technology may offer some new ways to improve efficiency and lower costs.

Tighten Up On Credit

Wait to see how reliably new customers pay before extending credit. Then get credit reports and bank references, especially if the amounts involved will be significant. If you have late-paying customers, call to remind them their accounts are overdue. (You know what they say about squeaky wheels.) Switch perennial late payers to COD.

Beef Up Billing

Send bills as promptly as possible — the sooner they’re in the mail, the sooner your billing cycle starts. Crunch some numbers to see whether it makes sense to offer early-pay discounts. Make sure your payment terms include a penalty charge for past-due amounts.

Settle Disputes

Resolve shipping and billing errors as quickly as possible so customers don’t delay payment, which could put the squeeze on your cash flow.

There’s another way a cash crunch could take a toll: Without cash on hand, you might have to pass up opportunities to grow your business.

Take Your Profits

Selling an appreciated investment and using your losses to offset your gains can be a smart tax move. But remember that taxes should never be your only reason for buying or selling investments.

Bunch Expenses

Un-reimbursed employee business expenses, tax preparation fees and certain other miscellaneous expenses are deductible only to the extent they together exceed 2% of adjusted gross income. Common business expenses that may qualify for the deduction include home office expenses, professional dues and subscriptions, costs related to business travel, required uniforms or work clothes and job search costs.

Have a question? Contact Jon Neal.

Your comments are always welcome!

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