We have to manage our business with much more diligence than ever before.
By Marty McGhie
As I observe the continual, unnerving changes in our modern business environment and try to make sense of it all, one thought constantly comes to mind: We have to manage our business with much more diligence than ever before. As scary as the idea might be, we are all potentially only one poor decision away from going out of business.
So how do you avoid such a worst-case scenario? You manage with more diligence. And you start with your cash. Even in the worst of times, if you’re successfully managing your cash, you will probably survive. And in good times, you’ll be able to build up cash reserves. How exciting would that be?
So what actions can you take to help in this effort? Well, if you aren’t already doing so, immediately begin monitoring your cash on a daily basis. While this may sound like an overwhelming task, it can really be rather easy. Your first step is to put together a simple spreadsheet that will act as a dashboard for your cash positions. The key elements that you can begin measuring include: cash balances; outstanding aged accounts receivable; outstanding aged accounts payable; and any significant cash commitments for the current week, such as payroll, taxes, etc.
Once you begin measuring and monitoring these numbers on a daily basis, you’ll begin to see some trends that will help you improve your daily cash flow.
For example, if your accounts-receivable balance averages close to 60 days and your accounts-payable balance averages 30 to 40 days, you probably have a cash-flow problem to deal with. You will also soon see cash-balance trends during different periods of the month that will help you plan more carefully for significant cash outflows such as payroll or taxes. Watching your cash positions and obligations on a daily basis should be a consistent practice in your daily management routine.
Collecting your receivables is likely the most challenging aspect of cash-flow management. And at the risk of sounding like a broken record, the answer here is daily diligence. Whether you hire someone full time or someone who devotes a specific amount of hours per day on collection efforts, this task must receive its deserved attention to make a difference.