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What Are Your Top 10 Action Items For Finding Cash In A Business

Sep 15, 2010

The third quarter is almost done.  Fourth quarter and year end loom.  In many companies where I have worked, Q4 = Budget Time ("!@#$%^&*").  As a B2B CFO, I'll be working soon with my clients on 2011 budgets, looking to squeeze more cash out of their businesses as we continue to deal with the current economy. 

What are your Top 10 action items for finding cash in a business?  Here are some of mine.

1.       Talking of budgets, let's set one for 2011.  In the budget, set targets that encourage cash-generating behaviors.  For example, set a DSO target.  Then ensure that all company processes tie to that number.  Make sure that the company has defined, contractual selling terms that will achieve the DSO target.  Create incentives for employees to meet or beat the targeted DSO.  On the other hand, don't reward behaviors that override the budget targets. 

2.       Implement steps to collect the cash.  Look for ways that automate cash collection.  If you don't accept credit cards now, consider doing so. You will incur transaction fees and small monthly fees, but you'll get your cash faster.  Faster cash collection reduces borrowing or factoring charges.  Implement effective collection procedures.  Have a process to issue invoices on time. Be sure that process prevents excess overdue payments or build-up of bad debts.  Review aged A/R reports regularly.  Call customers when payments are not made on time.  Ask them if they received invoices or if they have problems paying.  Use the call to confirm payment terms. 

3.       Get out of the business of mailing invoices.  Use email to send invoices instead.  Ask or require customers to accept e-mailed invoices.  An e-mailed invoice can be re-transmitted very quickly by the approver to the accounts payables department for processing. Result: your company is likely to get paid sooner, with no printing or postage costs. If you must use regular mail, consider where the invoices are mailed.  Think about printing and mailing from a location closer to the customers.  If a Florida-based company has a large batch of invoices going regularly to west coast customers, it may make sense to print and mail them all from the west coast.  On the same point, if payments must come back by mail, consider setting up bank lock-boxes near the customers to receive the mailed checks. 

4.       Give your customers incentives to pay you quicker. Offer a discount for quick payment. And if you are offered early-payment incentives with your payables, use them.  If your business has free cash to take advantage of a 2% early-pay discount, take it.  It's great for the bottom line. 

5.       Pay your vendors with a credit card. If you know the statement cut-off date, make the purchases just after each statement date.  Purchases will then only be reflected in the next monthly card statement, and you may get 20 days from statement date to send in the cash.  40 to 50 days of free credit is not to be sneezed at.

6.       Watch that inventory.  In the budget, set aggressive inventory turn requirements.  Money tied up in inventory is not producing any interest or savings. Prepare and monitor inventory aging reports.  If some inventory is moving slowly or not at all, consider discounted offers or last-time-buy notices to customers.  Cut customer choices; there is no glory in having that obscure widget on the shelf if it has not sold in the last 24 months.

7.       I see so many budgets that concentrate only on business operating income and expenditures.  Don't forget capital Expenditures.  Capital spending can be full of ugly surprises, particularly where IT systems, plant and machinery is old.  Businesses must actively manage and control CAPEX each month. Just because it is recorded on the balance sheet and not in the P&L statement does not mean it has no cash implications.

8.       Does your business really need all those assets?  Are any assets unwanted?  If assets and equipment do not consistently bring in revenues or reduce costs to produce expected returns on investment, look at selling them.  And even if assets may be needed, consider also if they must be purchased and owned outright.  A lease may be a better way to finance the cost and spread out the cash requirement. 

9.       Watch the margins in the budget.  Try to budget for improved gross and net profit margins.  That will force the company to evaluate both revenues and expenditures.  Budgeting for higher gross margins means that you know which product lines are more profitable than others.  If you don't, find out.  Can you concentrate on the more profitable ones, and still hit targeted revenue levels?  Eliminate services and products that are too costly and ineffective?  if 'Yes', then cash flow should increase. 

10.    All small business should consider outsourcing if a function can be provided more effectively at less cost by a third-party.  That goes for most functions in the company.  There is no need for a company to do its own payroll.  Calculating and remitting all the withholdings can be a minefield.  If major companies can use outsourced manufacture, why not yours?  Why not an outsourced part-time CFO?  Think of the benefits of having someone with >25 years of high-level business experience on call to guide you, your senior operating team and your accounting department, at a fraction the cost of a full-time CFO.  Check us out at http://www.b2bcfo.com for more information.

 

 

 

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About the Author

Peter brings more than 30 years of experience in accounting, finance, banking, international trade and law to his clients. His career is marked by a progression of senior finance roles with growth and performance-driven enterprises, from start-up technology and internet companies to chief financial officer roles in small service providers ($50 million) to very large international manufacturers ($25 billion) to global banks. He is a decisive, focused, and versatile financial executive with uncompromising integrity.

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