Positive Cash Flow is Critical
for Small Businesses to Thrive

Columbia, Mo., April 15, 2005 — Ask any group of 10 small business owners what they consider the lifeblood of their businesses. More than likely all of them will say: "Cash flow."

"Cash flow is a significant issue for any business but it's an especially critical factor for small businesses, because when cash flow is insufficient it can cause a business to cease operation even though the business may be viable and profitable," contends Max Summers, director of the Missouri Small Business Development Centers (MO SBDC), part of the University of Missouri's statewide Extension program.

"With the federal Small Business Administration's annual National Small Business Week occurring near the end of this month (April 25-29), it serves as a good reminder for small business owners to evaluate their company cash flow," suggests Summers. "Consider the following pointers to improve cash flow for your small business."

• Practice timely billing - Send bills immediately following delivery of goods or services; don't wait for a 30-day billing cycle to charge customers.



• Speed up receipts - Give your customers incentives (or disincentives) to encourage quick payment of bills. Offer discounts for early payers or penalties for late payers or a combination of both.



• Terms can trump price - Take care to negotiate the best payment terms possible with vendors. Frequently the cash-flow value of better payment terms can exceed the savings value of lower prices. "Arrange for account terms that enable payables to minimize the cash needed to carry receivables," says Summers.



• Employ technology - Use financial software sufficiently matched to your accounting needs and cash-flow situation. Also use electronic transfers, when available, to make timely payments on bills.



• Plan and project - Make financial projections for expenses and revenues on a yearly basis, and take into account available cash reserves in the process. Projections should cover best-case and worst-case situations in addition to the most likely cash-flow forecast.



• Use loans appropriately - Consider taking a short-term loan from a financial institution familiar with your business to cover temporary cash shortages… but don't overuse or abuse the privilege. And pay off such a loan in a timely manner.



• Renegotiate long-term loans. Better terms can improve cash flow by extending payments on principals. "Loan officers can be accommodating to reasonable requests for consideration from valued small-business clients, as long as the client is forthcoming with pertinent information," says Summers, who is a former bank CEO.



• Sales: a double-edged sword - Increasing sales can be a boon to cash flow if billings cover cash terms. However, credit sales stretch cash reserves, causing cash to flow out faster than it comes in when depleted inventories must be replaced.



• Improve purchasing practices - Suggestions for better buying include: refrain from big equipment purchases, such as electronic items, as long as possible; use lines of credit wisely and pay them off before interest builds; buy in bulk when quantity price breaks are significant on useful items.



• Invest in your business - Marketing your business and providing selective training for yourself and your employees can pay returns by increasing business and improving cash flow.



• Value accounting expertise - The services of a good accountant can serve as an investment rather than an expense. Have an accountant review monthly and quarterly cash-flow projections and results. Accountants also can help small business clients stay on top of quarterly tax bills with accurate projections of tax liabilities.

"While these suggestions are not comprehensive, they do offer small business owners several valuable ideas for improving cash flow," Summers says. "And positive cash flow can go a long way toward maintaining or improving the health of any business."

SBDC counselors are located throughout the state to help small business owners and prospective owners address significant business challenges. All SBDC counselors are tied to an academic host institution, such as Central Missouri State University, Missouri Southern State University, Northwest Missouri State University, Southeast Missouri State University, Southwest Missouri State University, Truman State University, and the four campuses of the University of Missouri at Columbia, Kansas City, Rolla and St. Louis.

The MO SBDC network exists to help Missourians succeed in private enterprise. To learn more about this statewide business development network or to locate a business counselor near you, get on the Internet and go to www.missouribusiness.net

For business courses to help with financial management, visit www.missouribusiness.net/training/ and go to the finance offerings.