“Never take your eyes off the cash flow.”
Sir Richard Branson
By Paul D. Kreiter, M.Ed.
The Problem: According to a study by U.S. Bank and SCORE/Counselors to America’s Small Business,
over 80% of small businesses fail due to cash flow issues. Don’t be one of them.
Here are a few useful guidelines for managing cash flow in a small business.
CASH CYCLE A cash-flow cycle is the elapsed time between purchasing inputs, producing the
final product, sales, and collecting cash. You need an accounting report measuring the amount
of cash, both in the past month and over the next 12 months.
ACCOUNTS RECEIVABLE This is a critical source of cash flow, and you should build appropriate
systems: a customer-facing system to ensure on-time payments; an accounting report that
measures aged receivables.
INVENTORY You need to manage your inventory as you would your liquid cash, by rapidly
turning your inventory.
VENDOR MANAGEMENT If you enjoy good relations with suppliers, you might be able to
negotiate better payment terms, such as scheduling them at a later date without penalties.