Without managing your cash - measuring it, investing it, borrowing it, and collecting it -- you can cheat yourself out of extra profits and end up in trouble with creditors and in bankruptcy.
Keeping track of your cash position is essential, because cash flow is the lifeblood of a small business and is fundamental to its existence. Financial failure is caused by lack of cash, not lack of profit.
Having "enough" cash means having enough cash available at the right time.
Poor cash flow can mean the loss of attractive opportunities such as the chance to buy inventory at bargain prices or to pay vendors early in exchange for discounts.
Cash flow is truly a flow, like the tide. Being aware of the different factors that affect this flow is important. Here is a list of some of the factors that contribute to the crests and troughs of cash flow:
• Nonregular disbursement items such as debt repayment, equipment purchases, and store furnishings.
• Seasonal sales that cause fluctuations in cash receipts and cash payments.
• Variations in biweekly payrolls; some months have three, while others have only two.
• The placing of large orders in order to obtain volume discounts.
• The payment of sales commissions or bonuses at the end of the year.
• Closing the business for vacations or repairs. Cash Crunch Warning Signs Is a cash crunch ahead? Look out for these potential warning signs:
Cash on hand has been declining for several months
Receivables are taking longer to collect
Payables are increasing
You’re putting aside bills that you typically pay on time
You’re unable to pay yourself a regular salary
You’re getting calls from vendors asking about invoice payments
Your inventory levels are increasing
You overdraw your checking account expecting new sales to cover it
You loan the business personal funds to meet routine expenses
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