MANAGING MONEY

Managing money, your business cash flow, successfully is often the most important aspect of all your business duties.

The movement of money, into and out of a business and the way in which it is handled is critical to the success or failure of the business.

Managing your money successfully means that the business has a good chance of surviving and growing, while mismanaging this aspect of business is a quick way to disaster.

Get the idea?

Bean Counting

Successfully managing money means keeping account, a skill that is often neglected in small business and hence often leads to the business failing.

When starting out in business you will soon learn that new businesses can never have enough cash, they seem to eat it faster than you can make, it so counting what you have seems a good idea.

Cash is needed for labor and production costs, but also for repaying start-up loans, taxes, inventory (stock) and finally carrying the cost of your accounts receivable, interest free loans to your customers!

Depending on the credit terms that you offer your customers, you can wait between 30 and 90 days to be paid for your goods or services. This is, of course, assuming that your customer pays on time!

The answer to all this is to live lean and get the cash in on time by managing money, all your money.

Cash is King.

No cash no business.

You would be so lucky if all your customers were cash customers. Your business cash flow would be a dream and some businesses are in that happy situation.

Most businesses however have to extend credit to some extent and managing this takes time and skill and is neglected at your peril.

Let’s take a look at the managing money skill aspect first.

Accounting Skills are needed.

• In most cases, business owners are not experts in accounting. Expertise is usually in the service or products they offer or produce. Realize this and leave your accounting to an expert. Sloppy bookkeeping will cause your failure.
• Managing money is a crucial function in any business, a senior executive position in fact. I am serious here; your small business finances need the best you can afford. A good accountant will safeguard the assets of the company, contain costs and recommend cost cutting measures.

  Cost containment and fat trimming are major aspects of the job, but getting the cash in is essential.

• Unless you have a partner or employee with specialized accounting skills and experience give serious consideration to outsourcing your accounting. You will never have the time to do it properly yourself and it really needs to be done properly.
• If your business is small, outsource to an experienced accountant on a part time basis. Don’t mistake a bookkeeper for an accountant, they are very different and managing money well, needs an accountant.

  In many cases, you can recruit the services of a retired chief financial officer (CFO) or a certified public accountant (CPA) and get solid advice as well as a good set of monthly accounts.These will include your oh so vital balance sheet. If your business is large enough, employ a full-time CFO or outsource to an accounting service.

You can save yourself much time and money as well as gain the experience of a profit center expert by outsourcing your accounting function.

Right, let’s move onto cash flow.

Cash Flow

Sales are good, profits are better, but cash is short, this is often the dilemma of small and many large businesses as well. If you are in business you will also get to experience the feeling!

The culprit, overdue receivables!

How to help prevent this dilemma! Get paid and get paid on time.

As always prevention is often better than cure, so reducing your exposure to a bad credit risk is essential. Here are a few suggestions to help with managing money:-

Establish your Payment Policies

Before you make your first credit sale have your policies laid down. Your money management depends on it. Only give credit if you have to and only to customers who meet your required criteria.

• Know your customer/client. Get to know your customer by visiting your customers business. Would you be prepared to loan money on the basis of what you see?
• Find out from his other suppliers how good a payer he is. Get references from the customer and others, even if they are word of mouth ones.

  Ask your sales staff if they would extend credit to the customer? They often know more about the customer than you.

• Set credit limits regarding amounts and credit time periods for each credit customer and monitor them carefully.
• Make sure that your customer completes your credit application form and clearly understands your credit terms.
  • Get names, addresses and phone numbers.
  • Some identity number, license number or other registration.
  • Customers bank details and bank branch.

• If appropriate, get some form of security, such as a lien on property.
• Invoice all goods on delivery or very soon after, don’t wait till month end.
• Understand your customers accounting system. When, how and who do they decide to pay first? What is their money management like?

  Try and arrange your invoicing so that yours are always at the top of their pile!

• Contact a credit reporting agency for financial information on the customer.
• Finally if you feel uneasy about extending credit on a large scale, don’t take the chance even if it means loosing the sale.

Now comes the crunch. You have extended credit, due payment date has come and gone. How do you get the client or customer to pay?

Collecting the Money.

Here are some suggestions that usually work, bearing in mind that it can often be less costly to write-off the sum owed than to spend time and money trying to recover small amounts.

• Once due date for payment has passed, phone the customer. Ask if your invoice has been received and tell them that payment is late. Suggest that you can help by collecting the money.
• If you have to phone again, remind them of your payment terms and their lack of payment.
• As soon as due date has come and gone, any further business must be on a collect on delivery basis (COD). Often when a customer tries to place an order and is told that it will be COD, this jolts them into paying the outstanding amount.

You can mess around here for weeks and months if you are not careful. Don’t. Get that money in or your company could go down the tubes. Follow your procedures and push. Your managing money means work.

• Two weeks after due date and no payment, visit the customer. Talk the problem through. If you can walk out then with even half the payment due, you have won that round.
• If your telephone calls or visit brings no joy start sending letters demanding payment. Start mild and grow urgent, remain businesslike.

  Only threaten legal action if you are prepared to carry it out.

• If you are prepared to pay the price, you can engage a factoring company to buy your outstanding accounts receivable and let them handle the collection. This can be expensive however, with fees of 3% to 5%.
• Legal action. The last resort. Expensive and will cost you between one third and half of the outstanding account receivable.

Once you have finally received payment from your customer, don’t resell to them on a credit basis again, its cash or nothing for them.

Slow payment is a sure sign of financial problems, so be warned.

Danger Signs.

Good money management also means keeping your eyes and ears open and even more so in times of economic recession.

When your customer says or does any of the following, beware.

• The check is in the post!
• We only have one signatory available to sign, Mr. Jones, our accountant will be back next week!
• We have some queries on your invoice that need to be sorted out!
• We are waiting to be paid by ? before we can pay you!
• We are still waiting for the goods.
• Payments that get slower and slower can be the precursor to the crash.
• If a large customer goes under you can soon follow so keep your ear to the ground and stop giving credit before it is too late.

Business cash flow and managing money takes energy and skill, sometimes more so than all the other aspects of managing a business, but you must get it right to succeed.

Giving customer’s credit is a risk so decide, based on carefully laid out procedures, which customers you will risk giving credit to.

Your service or product is not a sale until it is paid for, until then it is a loan so be carefully who you allow to purchase on credit.

The right accountant and correctly managing money can mean success.

But only if managing money means business!

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