By Jennifer Mailhes, CPA, Business Advisory Shareholder

Over the past year, efficient cash-flow management has become more crucial than ever. The COVID-19 pandemic sent businesses across the country into a frenzy, with many pivoting their business models on a dime to continue to serve their customers. Fortunately, much of the country is heading back to work and we seem to be approaching “normalcy” again. While the pandemic was the most unexpected and unprecedented event in our lifetime, that doesn’t mean it will be the last.

Whether your business experiences a slow season or another large-scale business disruption, having an effective cash-flow management plan in place can be the difference between success and closing your doors for good. Here are seven tried and true tips for successful cash-flow management your business can leverage any time.

1. Create a 13-Week Cash-Flow Forecast

If a company is in financial distress, a 13-week cash-flow forecast is the first thing a lender will ask to see. Simply put, this planning document shows your business’s cash in and out for the next 13 weeks. This is an excellent way to learn the timing of payments during the month, as well as which payments are the most important and should be prioritized, such as payroll. Even if your company is not in financial distress, a 13-week cash flow forecast is a great tool to better manage and maintain cash as well.

2. Account for Cash Flow in Real Time

Instead of using a spreadsheet and updating money in and out at a later time, keep your accounts and balances current by automating these entries within your accounting software. Not only will this help eliminate surprise dips or surges in cash flow, but it will give you a better understanding of your business, plus quickly identify opportunities or areas for improvement.

3. Build Up Cash Reserves

An easy way to free up cash quickly is to sell slow-moving or excess inventory items at a reduced rate or by employing an incentive for customers (such as a loyalty program to encourage continued business). Be sure to adjust your inventory purchases to expect increased levels of business and consider changes in lead times on orders.

When it comes to larger-ticket items such as rent, speak with your landlord about potentially restructuring your lease, changing your rent due date to a time of the month where you have more cash coming in or implementing deferrals.

4. Prioritize Areas Where You Can Improve Margins

By zeroing in on every cost of a product, you may be able to move a fixed cost to a variable cost. For example, switching up your sales structure from a salary plus commission model to more commission-based pay. This can also be implemented in your overall payroll by setting a strict limit on overtime.

5. Work with Your Vendors

Since your vendors are familiar with your business and have a vested interest in your success, check to see if they will review the terms of your contract or change payment dates to arrive at a payment agreement to carry you through turbulent times. Also, consider using a credit card to make your payments to vendors. This allows you an additional 30-days until the expenses impact cash flow.

6. Develop a Credit Policy

Gain a key understanding of your business’s credit and how far you feel comfortable extending it. By monitoring your slower-paying customers, you can determine when to use credit to cover you until receiving payment.

7. Simplify Billing, Shorten Collections

If your slower-paying customers continue to pay later or not at all, be sure to contact them immediately to shorten the collections cycle. To avoid any gaps in payment, be sure to send out invoices as soon as your services are completed or products are shipped out. Streamlining your billing process will help to keep money coming in quickly.

As we’ve learned from the COVID-19 pandemic, difficult and costly situations can arise at a moment’s notice. By spending time familiarizing yourself with your business’s unique cash-flow cycle, you can easily create an air-tight plan for when cash is low.

If your business needs assistance identifying areas where its cash-flow management could be improved, Doeren Mayhew’s Business Advisory Group is here to help. Not only can we point out areas of opportunity, but also offer solutions to streamline your efforts and keep your cash cycle short. To get started, contact us today.