First Person: Cash Flow Management for My Small Business

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One of the most important functions you need to oversee when you start a small business is the management of your cash flow. If you've been in the habit of using the back seat floor of your car for a filing system, get over it fast. The anxiety and lost time searching for important documents and receipts when tax time rolls around is not worth it.

It's not only a matter of keeping your business finances organized, but you must set policies so everyone in the company knows what to do. Your job is to set those policies and to enforce them.

Although many firms have gone totally over to using technology to handle bookkeeping, I prefer to back it up by keeping actual hard copy files. It has saved me from losing all my accounting data more than once when a computer crashed and for some reason the backup disks for my accounting software failed to recover it. Yes, it's time consuming, but I make photocopies of all the checks received through accounts payable and staple the bank deposit slip to the copy.

I also keep a hand written tally in my bank account ledgers to show what the business actually has in those accounts. It can take the bank a few days to update their system, so having my own records has saved me from spending money I didn't really have in an account. Once I was able to confirm a bank error for several hundred dollars because I had photocopied checks for deposit and kept the deposit slip. The bank computer did not record it, but I had the hard copy proof.

In the first couple years of doing business, it's critical to have the cash in hand when you need it to pay the bills. If you are depending on the balances from your receivables to handle the payables, make sure your receivables are in on time. It means sending your invoices out to your customers at the middle of the month when they are due at the first of the month. It gives your customers enough time to receive the bill, write the check and mail it back to you before your bills are due.

When you plan your budget for spending, remember to include the expenses that come up without regular frequency. Some overhead costs, such as utilities and rent are obvious, but you'll have basic debts that may only come due once a year. Payroll taxes, license renewals and insurance are examples of costs that can easily be overlooked during budget planning. They throw an unexpected curve ball into your cash flow when you suddenly have to fork over a chunk of money.

Last but not least, avoid using credit cards to cover expenses if your cash flow thins out. This creates debt you don't need and additional costs through interest and fees. If you need more cash to pay the bills, crack the whip a little harder and bring in more sales. It's that simple - increase your revenues and you won't have any cash flow issues.

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