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6 Steps to Managing Your Cash Flow

Author: Larry Chester, President

Everyone has a checkbook. If you think about it, your personal life operates just like your business, but it’s on a Cash not an Accrual basis. You receive money and you pay it out. You can’t pay out more than you have.

The balance in your checkbook is what you must work with. No more, no less. And, if you have a savings account that you put money into regularly for retirement, or vacation plans, you’re doing Accrual Accounting at your house.

Your business is just like that. You have money coming in and money going out. Here’s a simple, 6-step process in managing the cash of your business:

  1. How much money do you have today?
    This is your bank balance. Be sure to deduct checks you’ve already written.
  2. How much are you going to collect over the next week?
    Don’t guess. You know who pays their bills on time. Consider the money that you KNOW will come in. You can’t pay bills with a wish and a prayer.
  3. What bills have you received that you need to pay?
    These aren’t just the bills you received this week, but the invoices that you have entered into accounts payable, plus the ones that you’re waiting to enter. You need a complete picture of what you owe.
  4. What other payments are you going to make?
    You don’t get invoices for all your bills. Some payments are regularly taken out of your bank account, like your rent, phone, utilities, maybe your insurance, bank interest, lease payments. You need to add those in as well.
  5. Prioritize the payments into Critical, Should Pay, and Can Delay.
    Those payments coming directly out of your bank account are “Critical.” Your payroll and bank payments are Critical. Some suppliers are Should Pay. But, some suppliers might be in the Delay bucket.
  6. Now, put all that information into a list.
    Put your cash on top, add in your receivables, then subtract your Critical Bills. What’s left? Use that for your second calculation, your Should Pay. Do you still have money left? Prioritize your Can Delay Payments, and start subtracting those.

This is Cash Flow Management. Do this regularly, you won’t have any surprises. Your Part Time CFO is ready to help you put together a cash management plan to take the uncertainty off your desk.


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