Cash Management – Five Tips for Becoming an Expert

Business man with hundred dollar billsWhat separates the strong companies from the struggling ones? Great cash management!! The lifeblood of a business is CASH. Managed well, it yields a strong, healthy company. When cash is managed poorly, a business struggles and situations that are easily weathered by a healthy company can quickly become crises. But you can take steps to build your company’s resistance to crisis and keep its lifeblood flowing. Here are five ways to become an expert cash manager.

1: Be Realistic

A key ingredient to starting and running a successful business is optimism, but when it comes to forecasting cash flow and sales, it is imperative that you be realistic. Working with clients over the years has demonstrated that sales forecasts almost always need to be adjusted downward when preparing cash flow forecasts. Similarly, realistic time frames need to be established for the implementation of new programs that are associated with revenue generation. Many companies overestimate how quickly they will be able to get a new program up and running – and selling – which translates into longer time frames for which expenses need to be budgeted. Many a company has chosen optimism over realism when forecasting revenues, which results in spending budgeted funds at a rate that exceeds cash in-flow. What happens next? Cash flow problems! My role as CFO includes ensuring that my client’s company’s planning activities incorporate realistic forecasts.

2: Become Organized

Organization can be overwhelming if you’ve procrastinated getting it done. But “organization” is still defined simply as “a place for everything and everything in its place.” In business, this applies to having well-documented policies, procedures, systems, job descriptions and other company fundamentals. But good organization also involves the effective use of technology. As businesses grow, by their very nature, they become more complex. Being organized in how we accomplish work (production, sales, billing, collections) and manage people is critical. For most small to medium-sized businesses, more than any other single step you can take, organization will improve efficiency company-wide and have the greatest impact on cash flow. With most clients, this is one of the first areas I address to improve cash flow.

3: Maintain Flexibility

Preparing a cash flow forecast doesn’t ensure you won’t have cash problems, but it will give you the flexibility to make changes as needed to ensure positive cash flow. One of the strengths of a small business is having the flexibility to adapt quickly to fluctuations in the business environment. Flexibility can enable you to adapt in various ways including:

  • offering discounts or diverse terms to customers,
  • delaying payments to vendors,
  • renegotiating loans, credit lines or contracts, and
  • reducing or eliminating expenses.

Having a realistic cash flow forecast in place greatly improves the chances of managing negative events.  Flexibility allows a business owner to make cash flow management both an art and a science.

4: Practice Discipline

Discipline can be defined as “to produce a specific character or pattern of behavior.”  In business, this can mean staying committed to a plan or course of action.  But discipline first requires that we develop that plan, and then make decisions that keep it on track. It means we develop a cash flow forecast and manage against it. Unfortunately, I sometimes see companies abandon their plan by spending money on items that are not budgeted in the cash flow forecast. Often this indicates that they didn’t have the discipline to stick with the plan, or didn’t have the discipline to invest the time to go through the process of developing a good plan initially. Discipline means we make the hard decisions early and often. Without discipline, cash management is nearly impossible.

5: Foster a Cash-Conscious Culture

When a business is young, the owner naturally maintains a keen focus on cash. In addition, he/she usually retains sole authority over expenditures. As the company grows and hires new team members, management of cash quickly becomes more complex and the owner is challenged to keep tighter controls on cash. Creating a culture that is cash conscious involves educating all team members about how their actions and decisions impact cash flow in the business. As leaders, we must imbue our beliefs, attitudes and values concerning cash throughout the company. We must create a culture in which each employee’s role includes accepting ownership of cash related decisions. I have worked with companies which have created incentives for their sales staff that include collections, not just sales. Cultivating a cash-conscious culture empowers your team members to focus on the cash flow of your business, which in the short and long term is good for everyone!

How many of these key components of effective cash management are well developed in your business? I challenge you choose one of these elements that can use improvement, and map out a plan to become an expert in that area. It takes time and discipline, but it can most certainly be done and will always pay off.

I’m here to help – whether strategizing a plan to improve your company’s cash flow or refining specific skills in key areas. Contact me to discuss how I can assist your business in becoming stronger and better prepared for any challenges it may face.

Rick Arthur

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Rick Arthur is a CFO whose expertise is built on Financial Intelligence and 35 years in senior financial roles. Coupled with a CEO’s perspective and the experience of building his own $20 million company, he brings a unique depth of insight into business from the top down. Wired to get to know people, Rick works hand-in-hand with business owners of intentional, growth-oriented companies, solidifying relationships as a trusted advisor and confidant to his clients. He leverages his experience to help business owners gain traction and stay laser-focused on the company’s vision, cash flow, and profitability – all while creating big picture solutions for strategic planning, growth and sustainable success.