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10 Tips on Managing Your Cash Flow

By CO Staff @canadaone |

Ask most business owners and they'll tell you that managing cash flow is one of the trickiest balancing acts around. Chartered accountant Jeffrey D. Sherman spearheads the subject in Cash Management Toolkit for Small & Medium Businesses, a new book published by the Canadian Institute of Chartered Accountants (CICA) and sponsored by CIBC.

Here are his 10 tips for getting a better handle on managing your business's finances:

  1. Plan and monitor your cash on a regular basis by comparing your actual results to your budgets and forecasts. This will allow you to analyze differences and deal with issues before they become a problem.
  2. Involve operating managers in understanding the effect on cash of their decisions. Balance sheet numbers should be reported at the operating unit level, and managers should be accountable for the working capital amounts that their operations use.
  3. Control and monitor your accounts receivables to help ensure you are collecting payments when due. Start following up unpaid invoices before their due date.
  4. Negotiate terms with suppliers to ensure you are getting the best prices and terms. Most of the value-added process for purchases must occur before you buy.
  5. Reduce the risk of fraud by ensuring that there is good division of duties in all areas and that proper authorization procedures are in place and are being followed by all staff.
  6. Have a business recovery plan in place to deal with disruptions or unforeseen shutdowns to your business or to your key suppliers. 
  7. Talk to your bank about whether they have new products that will reduce your transaction costs and provide you with better on-line tools to access your bank accounts.
  8. Invest your excess cash to achieve a balance between a reasonable rate of return and minimal financial risk. Review the returns that you achieve against an appropriate benchmark.
  9. Periodically revisit how you carry out administrative operations. If you outsource a function (such as payroll), could you improve efficiency by bringing it in-house?  Could you benefit by outsourcing functions that you perform internally now?
  10. Cut unnecessary expenses and look for ways to free up cash.  Focus as much on effectiveness ("Do we need to do this at all?") as on efficiency ("Can we do this more cheaply?")

You can order Cash Management Toolkit for Small & Medium Businesses by Jeffrey D. Sherman at (English version) or (French version).

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