EVOLUTION CAPITAL PARTNERS EVOLUTION CAPITAL PARTNERS The 5 Pillars of Business Freedom Pillar #1 - FINANCIALS How to Get Your Cash Flow In Order EVOLUTION CAPITAL PARTNERS
Jun 21, 2015
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The 5 Pillars of Business Freedom Pillar #1 - FINANCIALS
How to Get Your Cash Flow In Order
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This is Business-Owner Mike.
He’s been leading Mike’s
Services for about 10 years
now.
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As Mike tries to grow his business, he is struggling to keep his head above water.
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He struggles to
pay his employees…
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…and his debtors.
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If only he followed a few best practices, he could
achieve financial freedom and spend money on revenue-generating
projects…
…instead of just staying afloat...
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The Answer?
Cash Flow Management
It’s not as hard as he might think.
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Mike needs to start making accurate cash flow projections.
…with 3 easy steps.
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1. MEASURE CASH FLOW Mike starts his cash flow projection with
this simple equation:
Cash On Hand +
Cash To Be Received
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Mike has to work with his team to answer,
“How much cash are we going to get from:”
• Customer Payments • Interest Earnings • Service Fees • Partial Collections of Bad Debt • Others Sources
…and when?
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Mike also needs detailed knowledge of the amounts and dates of upcoming cash outlays.
That means not only knowing when each penny will be spent, but on what.
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Know the Details
Have a line item on your projection for every significant outlay. Examples include: • Rent & Utilities • Salaries and Wages • Taxes • Benefits paid • Equipment purchased for cash • Office Supplies • Advertising • Vehicle and Equipment Maintenance and
Fuel
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2. IMPROVE RECEIVABLES In a perfect world, Mike would get paid for sales immediately.
In the real world, that doesn’t happen. But he can still improve his cash flow by managing his receivables.
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Mike needs to turns his…
Material & Supplies
Products & Inventory
Receivables
Cash
faster!
into
into
into
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Offer discounts to customers who pay their bills rapidly and shorten payment terms for others (ex. 45 days to 30 days). Ask customers to make deposit payments at the time orders are taken.
Require credit checks on all new non-cash customers.
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Get rid of old, outdated inventory for any amount of money. Issue invoices promptly and follow up immediately if payments are slow in coming. Track the progress of receivables to identify and avoid slow-paying customers. Institute a policy of cash-on-delivery to refuse to do business with slow-paying customers.
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Mike is managing a growing company so he has to watch expenses carefully. In order to do that, he has to follow these best practices…
3. MANAGE PAYABLES
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If expenses grow faster than sales, you
have to examine costs carefully to find
places to cut or control them.
Control Costs
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Take full advantage of creditor payment terms. If a payment is due in 30 days, don’t pay it in 15 days.
Extend Payment Terms
Use electronic funds transfer to make payments on the last day they are due. You will remain current with suppliers while retaining use of your funds as long as possible.
Use Electronic Funds
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Don’t always focus on the lowest prices when choosing a supplier.
More flexible payment terms can improve your cash flow more than a bargain-basement price.
Choose the Right Supplier
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Communicate with your suppliers so they know your financial situation.
If you ever need to delay a payment, you’ll need their trust and understanding.
Be Open With Suppliers
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Carefully consider vendors’ offers of
discounts for earlier payments. These can amount to expensive
loans to your suppliers, or they
may provide you with a chance to reduce
overall costs.
Read Contract Details
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Now that Mike and his team know the Financials inside and out with
Measuring Cash Flow Improving Receivables
and Managing Payables…
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Mike can plan ahead and focus
on growing his
company.
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What’s next? Establish a Plan based on your detailed financial metrics. Stay tuned.
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Want to know more? Visit: www.evolutioncp.com Call: 216-593-0402 Email: [email protected] Sign up to receive email updates on new tools, tips, and advice on making your business profitable.