11 Cash Flow Management Secrets

Successful cash flow management is a critical component in the operation of your business. Create a systematic way to manage both your cash in, and your cash out. If your accounts receivable collections are slow, it might not be the best time to add a lot of expenses. Manage your cash flow both ways in relation to all aspects of your business. Be willing to quickly dial down expenses if revenue is sluggish. Here are 11 secrets you can use for more effective cash flow management.

1. Be aware of increases to your fixed expenses because they are hard to cut if your business needs to. Whenever possible, build flexibility into your fixed cost structure. This includes: (1) Extending your financing’s amortization schedules (in 99.9 percent of cases, you can choose to prepay if you want). (2) Writing “outs” into your vendor contracts or other stop-loss provisions should you need to cut expenses. (3) Get more from what you have before you invest in more.


2. Watch your sales cycles and make sure you’re not building up assets, inventory, or staffing at a time when business is about to slow down.


3. Consider not prepaying too many expenses unless you are given a business reason to do so (i.e. a meaningful discount). Sometimes it’s better to pay monthly to guard cash flow rather than pay annually up-front.


4. Consolidate your purchases and negotiate better pricing. This is an especially important cash flow management technique for companies that have gone through a recent growth spurt. Too often, companies pay prices based on purchase volumes they exceed.


5. Get competitive bids from vendors. Even if you plan on staying with your current vendor, the very fact that you know and they know you’re getting outside bids will keep their pencils sharp and help ensure you get better pricing.


6. When needed, cut fast and cut hard. Don’t stretch out cuts that are necessary; take off chunks and get on with your business.


7. Always pay owners a salary for the meaningful work they do (otherwise you run the risk of distorting the true cash position of your company).


8. Build healthy relationships with your vendors and if needed, work out mutually beneficial ways they can help you out of a cash flow crunch.


9. Train your staff to ask for and get discounts. Having a short training course on how your team can get discounts, plus consistently recognizing team members who do this, pays off with increased cash flow. This one idea alone could reduce your variable expenses by 5 percent to 10 percent.


10. Using the 60 and 120 day view of cash needs. Always be looking around the next bend (recall secret number two, your business cycle, to be prepared for cash flow shifts on the horizon.)


11. Cultivate fiscal discipline as a core company value. Remember, symbolic choices you make or allow as the business owner will become a core part of your company. Implementing sound cash flow management policies is crucial to running a successful business.