Cash is king. It’s really important to remember that, when you are having a successful season, these things tend to ebb and flow. Put some cash away so that your company doesn’t suffer when times are a little more lean.
Jefferson City, MO (PRWEB) February 26, 2016
Bert Doerhoff CPA, founder of AccuBiz, recently responded to an Inc. story that provides guidance to business owners about effective cash management. Doerhoff summarizes that while it’s often tempting for business owners to spend an influx of cash on personal toys, it’s important to remember that a solid cash flow management strategy often marks the difference between sinking or swimming for companies.
“Once a company begins to run into cash flow problems, which are particularly common for new businesses, they are at the mercy of a lender,” says Doerhoff. “During an economic slow-down, it may be more difficult to obtain a short-term loan to meet the demands of payroll or another cash need, or the lender may extend less-friendly terms.”
In response, Doerhoff says there are many strategies that companies can use to improve their cash flow. One is to shorten the “float” periods that occur in the billing and payment receipt processes. Companies that bill customers automatically or set up their customers to pay online eliminate the float periods that come with waiting to invoice or waiting for a payment to come in the mail.
Companies may also benefit from knowing their optimal cash balance. There are a variety of ways to calculate the optimal cash balance, but essentially, it’s the amount needed to minimize costs but also pay all bills on time. A business may want to use a Cash to Total Assets ratio as just one way to calculate an optimal cash balance.
“A company encountering a cash flow challenge can take a number of steps before they become too entrenched in the problem,” says Doerhoff. “Sitting down with department heads to strategize on savings plans, putting a hold on new hires and minimizing spending are all effective ways to conserve cash. It is often a business owner’s reluctance to slow down on growth that causes cash flow difficulties.”
He recommends that when things are going well for a company and cash is coming in, a business owner should be paying down debt and accumulating some cash.
“Cash is king. It’s really important to remember that, when you are having a successful season, these things tend to ebb and flow. Put some cash away so that your company doesn’t suffer when times are a little more lean. Plan ahead and keep your business strong,” said Doerhoff.
About Bert Doerhoff
Bert Doerhoff, CPA, works closely with small business owners to minimize income tax and fill the gaps so the owner has more time to work on the customer centered core services. Doerhoff and his team can outsource all functions of an accounting department, from bookkeeping to CFO services. The CPA firm has multiple QuickBooks advisors to help clients maximize the benefits provided by their accounting system. Doerhoff is co-author of Six Steps to Small Business Success available on Amazon. Contact Bert Doerhoff, CPA, by email at bdcpa(at)AccuBiz(dot)net; by phone at (573) 634-4006; or learn more at http://www.AccuBiz.net.