How to keep the cash flowing

By NANCY MICHAELS / Scripps Howard News Service

Cash. It's the lifeblood of any small business. Through careful planning and forethought, you can keep it flowing.

First, do an annual forecast, based on previous years' figures, then break that into monthly projections. By keeping tabs on cash coming in and going out, you can plan ways to compensate for the slow times. You'll also know when to delay purchases so you'll have enough to pay regular expenses, such as insurance premiums and quarterly tax returns.

Other ways to improve cash flow include:

- Sending out invoices promptly. It may sound obvious, but the longer you wait to get your billing down, the longer it will be before you get paid.

- Collect a portion of your fee up front. This is common in certain service businesses. It's not unheard of to ask for 50 percent of a project's cost as a sort of retainer, and having the cash beforehand will not only improve your solvency, but it will serve as a buffer against late payments.

- Accept credit cards. This may cost you some money, but it's a guarantee you'll be paid.

- Estimate your expenses and include these in your rate. It's too easy for the small-business person to shrug off phone calls and errands made during a project for fear of creating the impression that they're "nickel and diming" a client. But by doing this, they're only short-changing themselves. Better is to forecast expenses related to a certain job and plug them right into the project fee.

- If your business is product-based, produce or order only the stock you need. You don't want too much of your money tied-up in your product. Resist the temptation to over-order for a discount per unit. If you're just going to be warehousing the items, you're defeating the whole purpose of the less expensive rate. The money invested in those goods will better serve you as expendable cash.

- Include shipping fees in the cost of your product.

- Take into account the seasonality of your business. If the bulk of your orders come in during the holiday season, put off ordering your product until that time. If every summer you see a lull in your consulting business, then look for ways to increase your cash flow in the months prior.

- Investigate whether your bank will give you a line of credit with your checking account. You don't want to go into major debt, but this is a quick fix for cash-starved times. Also, check out loan grant programs from the Small Business Association.

- Keep a cash control log to record expenses and payments. This way, you'll always know how much is available.

- Make it easy for customers to pay you. This means including your address on the invoice, or inserting a self-addressed, stamped envelope in with your invoice.

- When you pay your bills, don't send the check out until just before the due date. Sure, it's nice to be known as a prompt payer, but you'll be better served if you hold off and let your money earn interest for you.

- Attend bankruptcy auctions when you're ready to buy office equipment or furnishings. You can find these advertised in the classified sections of newspapers. Also, look for auctioneers in the yellow pages and ask to be included on their mailing list.

Maintaining positive cash flow is one of the primary challenges of the small-business person. But by keeping tabs on the money coming in and going out of your company and employing methods to keep the stream steady, you'll avoid the threat of your hard-earned cash going down the drain.