The Importance of Cash Management

Banks are not loaning money to new and small businesses, which means a strict cash plan if you still want to start or operate a small business.

Manage Your Cash and Have Exits and Alternatives

Manage Your Cash and Have Exits and Alternatives

Even if we all would enthusiastically lean towards embracing an economic recovery as being heralded by Washington and Wall Street, the fact remains that banks are not willing to loan money to businesses. Consequently we witness an ongoing repetition of the old saying, “Businesses don’t fail — they just run out of money.” While that saying often holds true for starting ventures, it can and does apply to most small businesses and growing companies as well. The steps you take to safely allocate your company’s capital today can help ensure that you’ll still have that company six months, a year, or a decade down the line.

Especially with so many previously mid and upper level management employees having been laid off, the idea of starting an own business seems to have taken on wings. The problem is that starting your own business takes a good idea, a structured mind, understanding and support from the family and… some funds while banks are not lending.

A strategic assessment of your business (idea) and some clever maneuvering can put your company in line to truly maximize each dollar. Crafting financial projections that anticipate your expenses and revenues for the next 12 months can help you determine if and when you’ll need more capital. The formation of contingency plans that account for the worst case scenarios may prepare you for the unexpected.

One mistake for example many (starting) business owners make is purchasing equipment when it can be leased instead. It is often the mistaken idea that what you buy becomes an asset, without the realization that especially in technology, the write-offs to zero are at best 3 years and no bank will loan money on office equipment such as computers, printers, networks, servers and such. Actually they are even reluctant to finance inventory. While weighing the financial consequences of leasing vs. buying, leasing is usually more expensive over time, but prevents you from needing to shell out large sums of upfront capital, which in turn frees that capital to be allocated towards other important areas or reserved for contingencies.

Effective cash flow management entails knowing what areas require patience, and which need to be expedited. When it comes to bringing on new employees, try to wait as long as you can. New employees take on average a minimum of 3 months before they become income producing for the company, so it’s often better to increase current employee productivity, employ independent contractors, or even outsource some of the less essential aspects of your enterprise. And most importantly watch your accounts receivables like a hawk. It’s money that’s yours to get.

Successful Cash Flow Management demands respect for money and turning a dollar twice before spending it. People with Cash in their hand right now in this economy, are making giant steps in the direction of wealth.

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