Bennett Financial Services

Effective cash flow management involves using the cash that you have on hand and your borrowing potential to provide your business with the necessary working capital to successfully operate through a variety of market conditions; to allow your business to provide reasonable credit terms to your customers; to prepare for a variety of risks associated with operating a business.

Success Strategies:

Separate our personal and business financing.  This is especially critical for small and new businesses.  Ensure that your business has its own bank account.  This is where you will deposit business revenue and from which you will pay business related expenses.  Many institutions will provide detailed reports of your account spending; you can use this information to set up future cash flow budgets.

Set up an operating line of credit with your financial institution.  This line of credit should be used to keep your business in operation until your cash receivables arrive.  Negotiate this line of credit before you need one.  You will get a better reception from your banker and better terms.   Attempt to negotiate the line of credit right after the fiscal end of a good year.  You will be required to show your financial statements and a good set of books will result in a stronger line of credit and better terms.

When making large purchases such as real estate or equipment, set up separate long term loans using those assets as collateral.  These loans should have longer amortization periods.  You do not want these kinds of purchases inhibiting your ability to meet your working capital needs.

During growth periods in your business, you sometimes need additional working capital to purchase inventory, much of which may be sold on credit.  In this case you could temporarily increase your line of credit, seek a short term injection of cash from shareholders, apply for one of several provincial or federal loan guarantee services such as the Canada Small Business Financing Programs.

Set up a cash flow budget.  This will allow you to forecast when cash flow needs are critical and will result in better planning.  Anticipate potential risks such as the cancellation of a large order, obtaining a large order, a late payment, or the failure of a creditor.  A cash flow budget will allow you to prepare for these potential concerns without them threatening the survival of your business.    

Diversity your client or customer base so that your business does not depend upon one large order or the success of one or two clients.  Market your products or services to different market sectors so that you will be less affected by particular market conditions.

To enhance your company’s positive cash flow, invoice your customers as soon as products are shipped and stay on top of your accounts receivable.  For large orders, get a deposit and use progressive invoicing.

Continually attempt to lower your costs by getting competitive quotes from other suppliers; seeking better deals from your current suppliers, and looking for better payment terms from your suppliers.

Keep accurate track of your inventory.  Analyze inventory turnover to determine which items are selling and which are not.  The ones that are not selling are tying up your working capital.  Keep inventory levels lean so that your working capital can be used more effectively.

If you need help in managing your cash – flow, contact Bennett Financial for detailed cash management strategies for your type of business.