A customer called today and informed us that he would not be able to pay their invoice for another two weeks due to cash flow problems. This particular customer has been in business for over 20 years. I never cease to be amazed by this. When the entrepreneur envisions his or her new business 20 years later, he or she sees a very successful and thriving company. All too often, this vision is not realized and it is due to poor managment. First of all, let me say that "lack of adequate cash" is never the problem - it is a symptom of the problem. The problem is occuring further up the line. What I recommend to my clients is three things: (1). Err on the side of conservative when ordering inventory. There will be times when you may miss sales because you do not have enough of a particular item, however, having too much inventory on hand when the economy dips can result in insolvency for your company. (2). Start a corporate savings account. Set up automatic withdrawal with your bank whereby they withdraw a small amount of cash each month from your business checking account and put it in an interest-bearing account. (3). If your company is a corporation, leave a little more cash in it every year than you take out. You will be surprised how quickly this strategy will add to your company's net worth. I have used this strategy for years with my company and we now have a very strong cash position. With this cash, we were able to make another $8,000.00 in profit last year by taking prompt-pay discounts offered by our suppliers. A common mistake that companies make is that they do not plan for cash. They plan for expansion and growth in terms of another branch or additional personnel, however, no concrete plans are ever made to establish a secure liquid position.
Source: http://www.ArticlePros.com/author.php?John Love
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