Growing Your Business

Why Cash is King for Your Business

Why Cash is King for Your Business

Good cash flow keeps your business on its feet and thriving. Poor cash flow, on the other hand, can sink your company quickly. Thus, knowing how to keep the cash moving in the right direction is essential to the success of your business.

Understanding Cash Flow

The term "cash flow" refers to the movement of cash in and out of a business. A company's cash flow may be positive or negative. When a company has positive cash flow, the cash flowing into the business exceeds the cash flowing out of the business. When you have negative cash flow, however, the cash flowing out of the business exceeds the cash flowing into the business. Ensuring that your cash flow remains positive is the key to maintaining the integrity of your business.

Maintaining Positive Cash Flow

In order to maintain positive cash flow within your business, follow these tips.

1) Make sure you send out all invoices in a timely manner.

Customers can't pay what they owe if they don't receive a bill. When you get behind on sending out your invoices, you will lose money quickly. To ensure that you are receiving a healthy cash flow through accounts receivable be sure to send all of your invoices out in a timely fashion. If customers don't pay by the due date, send an overdue notice and/or make phone calls immediately to facilitate the collection of the debts.

2) Deal with bad debts.

A "bad debt" is a debt that cannot be recovered. In most cases, businesses acquire bad debts because a customer refuses to pay, is unable to pay or passes away before the debt has been collected. Minimize bad debts by:

Being clear with customers about the terms of the transaction.

Requiring customers to bring their accounts current before purchasing additional products or scheduling additional services.

Use debt collection strategies when customers don't pay their bills. If you cannot afford to handle debt collection in-house, consider outsourcing these responsibilities.

3) Modify your credit terms.

Offer credit terms to customers that encourage early payment without hurting your bottom line. Adding a discount for customers who pay by a certain date, for example, may encourage customers to make their payments faster. However, be sure to build this discount into the price of the product or service to avoid losses.

4) Don't grow too quickly.

Every business hopes to grow, but growing too quickly can be problematic for cash flow. For example, if you reinvest all of your profits into the business to encourage further growth, you may create a cash flow problem, especially if you run into unanticipated expenses down the line. Cash flow problems may also develop if your business's rapid growth forces you to spend more money than you have on hand to keep customers satisfied. Careful planning is required at every stage of business expansion to protect against these problems. 

If you are concerned about cash flow within your business, consult an accounting professional.

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Mike Kilmer

Mike Kilmer

R. Michael Kilmer, CPA, CVA is a CPA based in Winchester, VA. Mike started Kilmer & Associates, CPA, P.C. in 1998 and understands the challenges of operating a business. He uses this real-life experience to assist clients with the opportunities and challenges that they face. In addition to possessing the expertise and technical skills required by the profession, he takes time to listen to clients concerns and communicates with straight talk in an understandable way. By combining technical expertise and real-life experiences, Mike is able to assist clients with solving their problems and complying with regulatory requirements.

KILMER & ASSOCIATES, CPA, P.C.
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