6 POWERFUL WAYS TO MANAGE CASH FLOW! (part 2 of 2)

4. Increasing Sales. One would think that increasing sales would lead to increased cash flow. However, if you invoice your customers for a large portion of your sales, when sales increase, your accounts receivable increase, not your cash. At the same time, inventory is depleted and must be replaced. Because receivables usually will not be collected until 30 days after the invoice, a substantial increase in sales can quickly deplete your firm's cash reserves. So, yes, increasing sales can help to improve cash-on-hand. However, this will be dependent on how well you manage your receivables. (additional tip: we have many clients who have used PayPal or Google Checkout to improve their cash position)

5. Managing Payables. A key strategy in managing cash is to shoot for bringing cash into the business as quickly as possible, then hold onto your cash as long as you can by managing your payables. That means, quite simply, take as long as you're allowed-without incurring late fees or interest charges-to pay your company's bills. Remember that a bad credit history can stifle your business, so you need to protect yours. Know which vendors you need to pay first. Better yet, negotiate with some of your vendors to extend to your payment terms. Also, you have to balance this with the necessity to have solid relationships with your vendors. You want to manage your payables but you also want to have a partnership with your vendors.

6. Investing Spare Cash. If your cash flow has become stable and predictable, you can consider investing your excess cash. This is also applicable if you raise a large sum from angel investors or venture capitalists and you will not need to spend it all quickly. You can earn additional interest income, as well as have the necessary cash to dip into during tough times. Can I interest you in some swamp-land in Florida?

Here's a recent audio cast from our Start-It-Up Cafe Cast on managing your books: http://startitupcafecast.blogspot.com/2008/03/get-your-books-in-order.html