FLORIDA SMALL BUSINESS DEVELOPMENT CENTER AT IRSC
26
EXAMINATION OF CASH FLOW WILL HELP
AVOID PROBLEMS DURING SLOW TIMES
TCBusiness.com
High water covers all stumps is a great
visual to describe a business owner’s way
of thinking when sales are strong and cash
is flowing, according to Michael Bernard,
certified business consultant with the
Florida Small Business Development Center
at Indian River State College.
“Sometimes, it takes receding water to
expose the dangers of a slowing market
and awaken a business owner to the importance
of healthy cash flow.”
To effectively manage cash flow, the
business owner will need to review and
examine the balance sheet and income
statement line by line and drill down into
all aspects of the business, including sales,
payables, receivables, inventories and
expenses.
Cash flow should be a regular managerial
exercise, not crisis-driven, only to be
performed during recessions or global
pandemics, Bernard says.
“As many owners, managers and entrepreneurs
fight for the very survival of their
business, it is critical that a close examination
of cash flow is conducted.”
A small business owner can Google and
find any number of tips about managing
cash flow, but merely pulling one or two of
these levers and thinking that’s all you need
to do is not going to get you there. There’s
no one magic bullet. It would be best if you
looked at all areas of your business.
With that in mind, the business owner
needs to examine new and multiple channels
to generate cash. This examination
starts with seeking out sales that increase
cash flow. Always keep an eye on your
gross margins to create more revenue with
fewer sales.
Now is also the time to explore and develop
new revenue streams to bring more
money in the door. A Treasure Coast seller
and distributor of advertising specialties
began distributing and selling hand
sanitizer and masks. Restaurants turned
parking lots into seating areas to maintain
occupancy numbers while adhering to
social distancing guidelines.
“The business owners must get out
of their comfort zone and get creative,”
Bernard says. “With new products, services,
and creative delivery channels, a business
has the opportunity to build stronger and
more loyal customer relationships.”
Efforts should also be made in renegotiating
rents and other contracts, if possible.
Deals for lower rent could be negotiated
for a limited period by agreeing to a lease
extension.
Cash flow can be increased through
the restructuring of bank debt. Banks
find themselves needing to do this again,
something they haven’t experienced
much since the Recession of 2008.
All of this is happening while operating
costs are increasing for many small businesses.
Expect your insurance premiums
to go up, for instance. So as you go line by
line, on your financial statements, you have
to ask yourself, what does each decision
cost, and what is the benefit it will bring?
Here are some additional ways to generate
cash:
• Review your gross margins and see
how they can be improved through pricing
or COGS savings.
• Improve discounts for larger sales
quantities.
• Negotiate long-term contracts with
fewer, higher quality suppliers.
• Subcontract low-skill elements to
lower-cost suppliers.
• Can you redesign your product to reduce
your costs without lowering quality?
• Open new, shorter, less costly
distribution channels.
• Introduce new technology to reduce
sales costs and improve efficiency.
• Sell off obsolete or slow-moving
inventories.
• Establish an inventory line of credit
with your bank.
• Collect your A/R aggressively. Get to
know the account clerks — learn the chain
of approval for payment from each customer.
Stay on top of any late payers — is
there a sense of urgency?
• Initiate an accounts receivable line
of credit.
• Contract with a collections agency for
old accounts receivable.
• Start charging interest or fees for late
payments.
• Consider offering discounts to incentivize
prompt payments.
Michael Bernard’s consulting experience
comes from his work with several international
accounting firms in their management
consulting departments working
with Fortune 500 companies throughout
the United States. He has also worked for
several local and regional accounting firms
as both a manager and principal in charge
of their consulting operations in the South
Florida area before opening his own management
consulting company in Miami.
• Consider asking for payments upfront
and the final amount at delivery.
• Consider upfront payments for customized
orders.
• Revamp your invoicing system if
needed. Make it easier for your client to
understand the invoice and payment
process.
• Buy used equipment or lease the
equipment. v
This article is provided by the Florida SBDC @
IRSC, the Small Business Development Center
within Indian River State College’s School of
Business. The center’s team of business experts
works one-on-one with hundreds of entrepreneurs
and business owners each year by
providing confidential, no-cost consulting. The
center’s mission is to help Treasure Coast businesses
grow and succeed.
BY NANCY DAHLBERG
/TCBusiness.com