Bay View Funding Blog

We have discussed the importance of liquid assets, or cash reserves to cover operating expenses, in a cash flow crunch. However, what can you do when your business has excess cash reserves? 

When you are offering any type of credit to your customers, it is important to provide them with your credit and collections policy. This means that they are aware from the outset of financial expectations, and of the penalties should they pay late. 

It is a common problem for companies to find their cash flow forecast is less than healthy, with errors and discrepancies showing up at the end of the year. Sometimes it comes down to items that are omitted, sometimes it is elements that take you by surprise, or sometimes it is simply that you have not been conservative enough in your estimation, assuming a higher percentage of sales than actually occurs. So what are some of the most common reasons for inaccuracy?  

We have written many blogs on the importance of cash flow, but there are a couple of cash flow errors that are not often mentioned. These are not centered on an inability to pay bills; rather it involves fiscal decisions that complicate one’s ability to manage cash flow correctly. Consider these three questions when if comes to company cash flow. 

Do you ever pay bills before they are due to be paid?  This may seem like a sensible decision, but unless there is an incentive to do so, for example a supplier discount, all you are doing is compromising your cash flow, and boosting the cash flow of your supplier, or other provider. Cash is king when it comes to your balance sheet, so why create the potential for a cash flow crisis just to try and get ahead of the game? It is important to keep your credit score as high as possible, but it is also important to keep your disposable cash flow as high as possible.  Paying bills on time is a different matter. Prompt, timely payment will benefit the credit score of your company and keep operations running smoothly. Sensible cash flow forecasting will help make the difference. 

Starting a new business, or expanding an existing business usually requires extra capital. Often small business owners are asked to sign a personal guarantee to secure the loan. What does this mean, and does it make good business sense? 

How much of your business comes from repeat customers? Are you providing the best possible service to your existing customers, while offering great reasons for new customers to work with you? Encouraging your customers to come back for more will help your business thrive. Check if you are following these easy suggestions to promote repeat business and entice new business. 

Effective business forecasting involves taking a look into the future, but the future is not always simple to predict. There are economic trends and fluctuations to take into consideration, as well as industry specific factors that can take any business by surprise. However, careful cash flow forecasting really does help better manage the inherent risks of growing businesses.