Did you know that most new businesses fail within the first five years? The leading cause is not a poor business idea or even lack of profit – it is cash flow! With the continuing economic uncertainty, it has never been more important for small businesses to take steps to proactively manage their financial situation.

Do you know how to best manage your cash flow? If you’re like most small business owners, and have never had any financial training, read on for some tips.

1. Get that money in fast!

Always send out invoices with your orders. Don’t delay requests for payment until the end of the week or the end of the month. If the product or service has been provided, it’s smart, and only fair, to ask for payment immediately. Make sure your invoices clearly state when payment is due, and indicate the penalty for late payment.

2. Get those checks in the bank!

Don’t leave perfectly good money sitting around waiting to be banked. Always deposit checks the day you receive them, and make sure you are getting the best possible “availability schedule” from your bank. Aim for two days or less, and make your deposits in person. When using automatic teller machines or night boxes to deposit your checks there is no proof of the details of your deposit should something go wrong.

3. Manage your cash inflow

Check the credit rating of each new customer and always ask for, and actually check, business references for customers with large orders. Avoid offering generous discounts for prompt payment, consider instead offering a smaller percentage discount for cash, ‘1.5% discount for cash’ is common – and always charge a late fee on overdue accounts.

Be vigilant in following up overdue accounts. In the first instance, telephone the customer when an account becomes overdue. People do get busy and many customers are appreciative of a simple reminder by phone. Be tactful but firm, as customers will often be embarrassed at the oversight and may pay immediately over the phone. If a telephone call doesn’t bring the account into line, send reminder notices and have a strict policy on when you will arrange for an attorney’s letter or collection agency to get involved. Never accept new orders from customers who owe you money.

4. Manage your cash outlay

Avoid paying accounts early unless a discount applies. Use business credit cards for business expenses as the bank generally does not require payment for some time after the monthly statement is issued. Always reconcile your bank statements; banks can and do make mistakes, and they are generally not in your favor! Most banks offer a reconcilement service, for a fee, if you are unable to do it yourself. A good bookkeeper or accountant can also provide this service if necessary.

5. Don’t leave extra money lying around!

Find out how much money you need to leave in your general checking account to cover bank fees and whether or not you are required to maintain a certain minimum balance. Put anything above this amount to work for you by investing elsewhere at a better interest rate, or use the money to help pay off loans. There’s no point having surplus funds earning nothing in your checking account when you have an interest-bearing debt to pay off.

Also, find out how much your bank charges for the various services related to your account and try to negotiate these fees downwards. Often by simply asking the question, you can obtain a good discount.

Author Bio: Roy Fisher, CPA specializes in providing accounting and tax services to small business owners and professional practices in Houston, TX. For more information, go here: http://www.ledger-solutions.com

Category: Advice
Keywords: CPA services, business advice, Accounting and tax services, outsourced CPA services