Cash is King

There are so many components to running a business. Monitoring cash flow is an absolute must to run a successful buisness. Not only do you need to do this to keep track of your accounts receivable and accounts payable, but a healthy cash flow strategy is crucial when planning for growth and expansion.

This will give you a clear idea of how much you have at your disposal each month and how it compares to your budget.

Having a cash strategy will discourage you from purchasing unnecessary things on credit. In addition, having a plan will allow you to identify places to cut costs.

These are a couple recommendations to build a strong cash reserve:

• Build a cash reserve of 10% to 30% of annualized revenue

• Collect A/R on a timely basis

• Get an aging of your accounts receivable every week and have someone call accounts over 60 days

• No more than 5% to 10% of total A/R should be over 60 days

• Invoice promptly

• Seasonality will have an impact on cash flow. Try to diversify into non-seasonality lines of business if possible

• Manage growth carefully. A high rate in revenue causes growth in assets, which creates negative operating cash flow.