Cash Flow Secrets

You probably spend a lot of time thinking about making money. You spend your days engaged in money-making activities, shooting for the goal of producing a substantial profit for your business. But do you ever find yourself too busy, stressed or tired to manage the money you're earning? You may feel overwhelmed, but to open the door to even more--and steadier--revenue, you need to plan ahead and manage your cash flow.

Cash flow is the amount of money accessible to your business on any given day. And managing cash flow--especially finding a way to make it more consistent--helps you make sound business decisions by alleviating your fears of running out of money.

Think about landing a big deal. You're on cloud nine and have dollar signs dancing in your head. But often, larger dollars mean a longer sales and receivables cycle. Closing a large deal may seem like cause for celebration, but it can also be a disaster for your small business. Many big companies are known for taking 120 days or longer to pay their vendors, leaving you cash short, stressed and desperate if you don't have a cash flow plan.

So what can you do about it? One secret to managing cash flow is being open, honest and realistic. Start with a truthful self-analysis of revenue streams. Do you have enough immediate revenue to sustain current and ongoing business expenses? Are you overstretching your resources for one large deal? Can you access financial resources in an instant, or is your money tied up in long-term investments?

Being honest with your customers, no matter how badly you want their business, makes sense as well. When negotiating a big deal, be candid with a large company by saying something like, "I can't be a bank for your company. My terms are 30 days. If that isn't acceptable, I'll have to decline this project." While you may fear losing a much coveted project, it's more important to manage your cash flow. This is especially true if your firm can't meet its monthly payroll if you have to wait for a large client's payment.

The bottom line is, you're solely responsible for managing your cash flow. A big deal could, in effect, bankrupt you if you don't have agreeable payment terms. Some would say to get an SBA loan. Contrary to popular myth, the SBA doesn't have a pile of money waiting just for you. Steve Burgess, CEO and founder of Corporate Toolbelt, says, "Many people think SBA loans are easy to obtain. In fact, they often require the same amount of paperwork as a standard bank loan and the criteria are often the same. The SBA allows its lenders to charge as much as 6.5 percent over prime rate for its express loans and guarantees a maximum of 50 percent of most loans."

Another secret to smoothing out cash flow is to establish a line of business credit. "Corporate credit is a hidden diamond," says Burgess. "It can take as little as three months [to establish] but usually can be well established within six to nine months."

Creating a system for managing cash flow may be demanding, but it's definitely time worth spending. Rather than squeezing this important planning function between daily business activities, it's best to take time out to think through your strategic financial plan. This is more easily accomplished off-site in peaceful surroundings with the assistance of a business advisor who has your best interests at heart. Once accomplished, you'll find your planning allows you to grow your business on a solid foundation for sustained prosperity.