New clients typically ask how they can better manage cash. This is particularly important in a start-up environment when operational results are needed at a fast pace to validate the new business and secure additional customers and future funding. Below are a few suggestions that can have a significant impact on your business.

Vendors

Often, business owners try to manage cash flow at the point of payment rather than the point of purchase. It is much easier to implement processes that approve purchases in advance. By controlling cash at the point of payment, you upset your vendors who delivered the goods or services on time and lose any leverage you may need for a quick turnaround time.

  • Create a list of approved vendors and negotiate the best pricing, quality and service
  • Require management approvals for goods and services purchased over a certain threshold
  • Request credit terms of 30 days at a minimum
  • Review cost/benefit of buying in bulk for discounts versus storage/spoilage costs
  • Challenge your Purchasing staff to be resourceful about vendor purchases without forcing them to act irresponsibly. For instance, there are plenty of viable, free conferencing services available today. Be mindful that the tone set makes it clear not to hurt the company in the process (i.e. skirting necessary software license fees).

Capital Expenditures

ALWAYS perform a ROI analysis before making capital purchases. Sales people are in sales because they are excellent at convincing you there is an urgent need for their products.

  • Delay capital expenditures as long as possible to preserve cash
  • Consider buying used versus new equipment

Customers

The name of the game is collecting receivables as quickly as possible.

  • Offer incentives for speedy payment, such as a 2% discount for payment within 10 days
  • Accept credit cards! Merchant fees are a cost of doing business. Borrowing money to make payroll will cost you more than the fees of collecting from your customers quicker.
  • E-commerce companies have the potential to collect payment in advance of the service or product delivery
  • Hire someone to do collections on old receivables on a contingency basis
  • Invoice customers daily
  • Factor your receivables for cash today

Employees

Labor is one of the largest expenses of a company. You must be cautious to hire only as needed and not to get ahead of the incoming sales.

  • Offer new employees in key positions compensation packages that reward success. Base pay can be at the lower end of the scale if there is a high incentive for success.
  • Sales commissions and incentives should be carefully structured and reviewed by a professional – it is very difficult to dial back a system without limits once it is in place without upsetting and losing sales staff
  • Enact a travel and entertainment reimbursement policy to constrain and limit costs
  • Exclude employee purchases of goods/services from the reimbursement policy to avoid the ability to circumvent the Purchasing Approval Process

Payment Method

Contact vendors and offer to pay by credit card as your preferred method of payment. You can take advantage of the additional time to float cash and may be eligible for cash reward points that can lower your overall cash outlay. Be careful because some vendors will take away favorable terms due to an increased merchant processing fee. Consider which deal is better for your business. The next best methods of payment in priority order are ACH, Check, and wire due to processing fees for each of these services.

In summary, these are a few suggestions on how you can manage cash effectively. If you are ready to seek a bank loan or raise investment funds, seek professional help to prepare you in advance. You only get one chance to make a first impression. You’ll want your business in perfect order to obtain the best rates and/or attract the best investors.

Written By: Jaime Davison, CPA, CGMA

Jaime Davison is the President/CEO of My Finance Resource and has been an CFO/advisor to many startup’s in healthcare, biotech, software, manufacturing and entertainment/media industries.  Jaime has 20+ years of experience in finance as a CFO/Controller and managing accounting/bookkeeping for Solopeneurs to Fortune 500 companies. For more information on how My Finance Resource can help your with you business contact jaime@myfinanceresource.com