4 Ways to Help Your Business Manage It's Most Important Asset

Every day, successful businesses go under because they just can't get ahold of their cash. Just because your company has substantial revenue does not mean your business will succeed if you don't properly manage your most valuable asset. Don't let that be your business. Managing it correctly can make or break your company and your growth. Below are four different ways to help you achieve your business's cash and optimize opportunities to grow.

Line of Credit (Revolver)

A line of credit can be a great way to help your business manage your cash. A line of credit is similar to a business credit card. You get approved for a certain amount with a specified interest rate. You don't pay any interest unless you draw (take money from) the line of credit, and once you pay the amount you pulled back, you are back to paying no interest until the next time you need cash.

While some businesses starting out may have trouble getting approved for one, a line of credit can help your cash flow timing between paying for products and expenses and the associated revenue. This lag can often cause businesses to limit their product launches or not hire that marketing associate that they need. By having a line of credit, it can allow your business to get the cash when you need it, and pay it off when the revenue comes in without paying interest and premiums for years like a traditional loan.

Financial Projections

Using the knowledge of your business and future revenues and expenses, you should be able to project what your cash balance will be for your business. This can be crucial to helping you manage your cash, figure out where you might have shortcomings, and proactively plan to deal with them. By accurately and realistically projecting your cash (keyword: realistic), you can give yourself time to find other means to secure more cash before you are out and go out of business. If you don't have any financial or Excel knowledge, hiring a professional, such as a CPA, can be helpful and give you insight into your upcoming year. I recommend every business make financial projections to help facilitate their business and foresee any potential cash issues.

Emergency Fund

I am sure you have heard that you should have an emergency fund with your personal finances to cover any unforeseen expenses such as a water heater going out in the winter, car breaking down, or a hurricane coming through your town. Just like your personal life, your business also should have an emergency fund. Ideally, in a separate account, in a different bank from your operating funds. These funds should only be used in emergencies when you are low on cash, and something unexpected happens. This could be your largest customer not paying you on time, your MacBook Pro giving out, or the last minute scrambles to get products from a different supplier because the ones you ordered were lost, stolen, or damaged. Unforeseen circumstances happen in business just as often as they do in your personal life, so it's best to be prepared. This can help prevent your company from running out of cash in a tight emergency.

Collections

This is where lots of revenue does not always mean lots of cash. Collecting on cash owed to you is vital to the survival of your business. No matter the size, companies that cannot receive cash for goods and services provided, go out of business. Now, if you sell products or services to customers and make them pay up front, you won't have to worry about this. Most, however, especially in the business-to-business world, don't require an upfront payment. You need to be hypercritical of who you are letting pay you after they have received the goods or services, and ensure you have a proper agreement in place about what happens if they don't pay. Many businesses show tons of revenue from the sale of goods and services, but can't get anyone actually to pay them cash for the work.

If your company is having a problem with collections or you are entering an industry that has collection problems, I would highly suggest making customers pay upfront for goods and services. This can take away the phone calls, emails, and stress of trying to collect money and ensure you have the cash to cover all your expenses. Collections can be a make or break for your business so ensure you have a plan of how to collect, and what to do if someone doesn't pay if you are going to allow people to pay after-the-fact.

Conclusion

Hopefully, you have realized how vital cash management is to business. No matter what size your company is, cash is almost your most valuable asset and is directly associated with the success and future of your company. If you want to discuss your business's cash management and cash management strategy, please fill out our 'Free Consultation' form, and I would love to help your company.

Disclaimer: This blog is written for pure discussion and general information. It should not be used as legal and/or tax advice. This blog is not a substitute for consulting with legal counsel or your CPA.