Cash Flow Strategies for a Successful Business part two

before  you read this this article ,you may  see the first part here 

 Strategy 6: Don’t pay too much or too early

Ensure you have a step by step purchasing procedure that is followed and monitored. Lack of proper procedures and monitoring
may lead to purchasing too much, paying for undelivered goods or overpayments. For example, it is common for payments to be
made on a statement and yet not have an invoice to verify the purchase. In my experience this can be the cause of overpayments.

Examples of how to improve purchasing and creditor payments include:

* A purchase order system that has two signatures for accountability.
* A system for requesting quotes for new products or for previously purchased products every six months.
* A procedure for receiving goods.
* A procedure for payment of goods that requires the purchase order, delivery docket, invoice and statement. The level of
paperwork required may vary depending on the size of your business.
* Always pay your creditors on the day the invoice is due. Do not pay early or late.
* Negotiate longer payment terms or a payment plan if the business is struggling.
*  Negotiate discount for early or up-front payment.

Strategy 7: Prepare 3 month cash flow plans

Cash flow is all about timing. A business can be profitable and still have cash flow problems. For example, ABC bought stock for
$5,000 in February. They paid for the stock at the end of March. The stock was sold to XYZ for $10,000 in April and they received the
money for the sale in June. In April ABC has recorded a profit of $5,000. However, the profit doesn’t hit the bank till two months later.

Prepare a three month cash flow budget. A cash flow budget includes all the expected cash inflows for the month less all the
expected outflows for the month. I prefer to prepare 3 month cash flow budgets as opposed to yearly cash flow budgets which I
found needed updating within a couple of months of preparing them. Any excess cash should be transferred to a high interest
bank account that can be easily accessed when it is needed. See below for an example of a cash flow budget.

 Strategy 8: Get the most out of your assets

Assets that are not producing a reasonable return on investment and
do not have any foreseeable benefit in the future should be sold.
These assets are tying up valuable capital that could be used
elsewhere in the business. You may have to pass on a great
opportunity because your cash is tied up in an unproductive asset.

Review your assets for the need to upgrade. If there is a more efficient
option available and it makes economic sense then upgrade to the
more productive asset.

When purchasing an asset weigh up the benefits and costs of both
purchasing and leasing. The better option may not be the same each
time. Seek independent professional advice.

Strategy 9: Tax problem or cash flow problem?

Legitimately reduce your tax until the benefits no longer outweigh the costs. Don’t use all
your energy on reducing tax, instead focus on improving your business. Always seek advice
from your tax accountant before the end of the financial year to minimise your tax. It’s usually
too late after the year has ended.

Sometimes there is the belief by business owners that they have a tax problem when they in
fact have a cash flow problem. Work out how much tax you paid in the previous year as a
percentage of sales. If the tax paid was 10% of your sales then put 10% of your sales into a
separate account that returns high interest. If your business has had a significant increase or
decrease in its profit then adjust the percentage up or down depending on the change. 

Strategy 10: Reduce owner’s salary or drawings

One common problem in small businesses, especially those with poor financial reporting, is the owners withdrawing more cash
than the business is generating. The owners may be taking a wage that is in excess of the business’s profit or may withdraw money
out of the business bank account for personal expenses without consideration for future business cash outflows. This can destroy a
business very quickly.

As the business owner you need to find the balance between reinvesting the profits to grow your business and enjoying the
rewards of your hard work now. This balance will depend on your individual circumstances. A new business will need to reinvest
more of its profits to grow compared to a mature business. I would recommend that a regular wage that is less than the expected
profit is withdrawn and that the business account is not used for personal expenses. The regular wage should be based on a
personal budget.

by Scott Richards of Beyond the Numbers

Posted in: 10 Cash Flow Strategies for a Successful Business