NFIB

Small Business Priority: Streamlining Cash Flow
06/ 11/ 2002

At times, external events like general economic and industry trends, national and global events and changes in public sentiment may disrupt your businessÆs cash flow. Usually there's not much a small company can do to alter or improve these trends. But when it comes to internal company operations and policies, small business owners and managers have a wide variety of options to streamline cash flow. Workshop contributor Jeffrey Moses discusses five adjustments to keep the flow smooth and steady in today's article.

1. Economize whenever possible. It may be tempting to purchase the best and latest furniture, equipment and services, but these may drain cash flow. Instead, focus on budgeting. Take a lease on office space in an area of the city that's a step or two down from the most fashionable. Purchase used or modest furniture instead of designer brands. When buying computer, phone or copier equipment, look into models that have been around for a year or two. It's much more important for new and growing small companies to maintain evenness in cash flows than it is to look flashy or to have the most cutting edge equipment.

2. When you're purchasing or leasing any type of item or service that is costly, put it out to bid to at least three companies. Never simply accept the price of equipment or supplies offered by your suppliers. Before putting a purchase out to bid, determine your exact specifications, quantities and frequency of purchase. Tell each company that you're giving the bid to other suppliers, and that you will be buying based on lowest price. You may be surprised that some suppliers quote the same types and models of equipment at vastly lower prices--often by 20 or even 40 percent.

3. Cut down on your inventory. You may be able to receive discounts when buying larger quantities, but if you purchase twice as much as you immediately need, you'll be tying up cash that could weather you through slow times.

4. Always make sure you're getting paid promptly. You need to assure that payment schedules are met and should call customers promptly when they fall behind. Consider offering percentage discounts for early payments. This is a great motivator that can keep your cash flow streamlined. It's important, of course, to work with customers, not against them, to assure prompt payment.

5. Arrange to pay your suppliers over time, instead of upon delivery. Always ask for longer payment terms--and favor suppliers that offer them. You've probably noticed that most large companies take a full 90 or 120 days to pay their accounts. Many owners of small companies like to keep payments more current, but in times of cash crunches, consider extending your payments as much as is contractually allowed.

Other quick tips to help your cash flow:

Increase your inventory through consignment goods rather than outright purchases so you won't have to pay suppliers until the products are actually sold. Repair instead of purchasing new equipment. And be frugal when it comes to purchasing ad space.

Check with your phone company to see how much you're actually paying per minute for state-to-state and in-state calling. You should be able to secure state-to-state rates of less than six cents per minute, in six-second incremental billing, which means that your time rounds off to the next six seconds, not the next minute.

Sit down once a month with a list company expenses, ranging from fixed costs such as leases to variable costs such as utility and phone bills. Determine where you can cut back without damaging your operations or discouraging your employees. Try to involve employees in cost-cutting, encouraging them to make suggestions for ways to reduce expenses.

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