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Operators entered the economic crisis in better shape than other sectors due to their balance sheet repair efforts
Cash management is a broad term that refers to the collection, concentration, and disbursement of cash. The goal is to manage the cash balances of an enterprise in such a way as to maximize the availability of cash not invested in fixed assets or inventories and to do so in such a way as to avoid the risk of insolvency.
Factors monitored as a part of cash management include a company's level of liquidity, its management of cash balances, and its short-term investment strategies.
Even during economic boom times, many small businesses experience cash flow difficulties, especially during their first years of operation. But entrepreneurs and managers can take steps to minimize the impact of such problems and help maintain the continued viability of the business.
Suggested steps to address temporary cash flow problems include:
• Create a realistic cash flow budget that charts finances for both the short term (- days) and longer term (1-2 years).
• Redouble efforts to collect outstanding payments owed to the company. "Bill promptly and accurately," counseled the Journal of Accountancy. "The faster you mail an invoice, the faster you will be paid…. If deliveries do not automatically trigger an invoice, establish a set billing schedule, preferably weekly." Businesses should also include a payment due date.
• Offer small discounts for prompt payment.
• Consider compromising on some billing disputes with clients. Small business owners are understandably reluctant to consider this step, but in certain cases, obtaining some cash even if your company is not at fault in the dispute for products sold/services rendered may be required to pay basic expenses.
• Closely monitor and prioritize all cash disbursements.
• Contact creditors (vendors, lenders, landlords) and attempt to negotiate mutually satisfactory arrangements that will enable the business to weather its cash shortage (provided it is a temporary one). In some cases, you may be able to arrange better payment terms from suppliers or banks. "Better credit terms translate into borrowing money interest-free," states the Journal of Accountancy.
• Liquidate superfluous inventory.
• Assess other areas where operational expenses may be cut without permanently disabling the business, such as payroll or non-strategic goods and/or services with small profit margins.
