Keep It Coming

Keep It Coming

Carol Holzberg

Spending more than you’re earning? Here are some tried-and-true methods for staying on top of your cash flow

IF YOU’VE EVER SUFFERED A SLEEPLESS NIGHT OVER how you’re going to meet the carrying costs of your home-based business, chances are you could use a refresher course in cash flow management. When less of your cash is tied up, you’ll have more on hand to grow profits or weather periodic shortfalls. Here are seven areas to focus on to free up the money that passes through your hands before taxes.

1. Know Your Numbers Draw up a budget based on a business plan, then stick to it. Each month, compare actual business operations with your plan to identify areas having a negative impact on cash flow and profit. Your best bet is to prepare for future cash needs by minimizing or eliminating activities that will restrict cash flow and hinder profitability.

For example, here’s how to determine if you’re carrying too much debt: Add up the amount you spend on office rent or mortgage payments, credit card purchases, taxes, and insurance (don’t include utilities). Divide that total by your gross income. If the result comes to more than 35 percent, you’re carrying too much debt. The free Debt Evaluation Calculator, available at the Microsoft Network’s MoneyCentral site ( tldebtev.asp), will help you determine if your debt-to-income ratio is acceptable or too high.

Need a business consultant but don’t want to hire one? Up Your Cash Flow Professional 5.0 (Granville Publications Software, 800-873-7789,; $295) will turn your PC into a cash flow consultant. The program creates a financial plan and forecasts cash flow based on data you enter, tracking information such as income, sales, cost of goods sold, expenses, income and payroll taxes, sales collection assumptions, payables, and receivables.

2. Cut Down on Spending Keep impulse purchases to a minimum, even if the item is on sale. You’ll save more if you don’t buy at all. Try to reduce the amount you spend on business gifts, too.

The best way to handle credit card debt is to pay it in full each month. If you must carry a balance from one month to the next, shop around for a credit card with the lowest interest rate. If you switch cards every few months, interest payments may be less because you can take advantage of a new card’s introductory rate.

Why pay a bill within the first 30 days if you can wait 60 or 90 interest-free days to honor your debts? Take the maximum allowable time to pay your vendors. Identify which accounts must be paid in full and which ones can be paid in stages.

If you can take a discount on a monthly statement by paying early, do so. A 1.5 percent discount amounts to an 18 percent annual return if the cash were invested. If your suppliers don’t offer a discount for early payment, ask for one.

Consider freeing up capital by leasing equipment rather than purchasing it. You’ll pay more in the long run, but you’ll increase the amount of cash available each month. What’s more, money paid for leased equipment can be charged as a business expense.

Don’t wait until the eleventh hour to plan vacations. If you do, you’ll wind up shelling out more for airline tickets, car rentals, and hotel rooms. Ask for business class specials when making reservations.

3. Shop Smart Buying office equipment? Take a few minutes to think about what you’ll need to buy over the course of the year. Know the features you want and the general price you can expect to pay. You may be able to find better deals by comparison shopping at Internet sites such as the Price Network (, PriceScan (, CompareNet (, and BuyersZone (

Insurance and telecommunications services are commodities. Review your insurance and telecommunications contracts annually, then shop around for the best deals. You may renegotiate your contracts every year, but it’s worth the time and effort if you can save on monthly payments.

Consider raising the deductible on your insurance policy in order to minimize premium costs.

And when it comes time to buy office supplies, team up with colleagues. You’ll get better deals for group purchases.

4. Improve Collection Methods Sell for cash or immediate payment by credit card, rather than extending credit terms. You get paid more quickly.

Stay on top of accounts receivables. Age them monthly. The faster you get your clients to pay bills, the more capital you’ll have for growth. Knowing who owes you money and how much they owe is an important first step in getting paid. Enlist the help of software programs such as Quicken Home & Business 99 (Intuit, 800-446-8848, www.; $90) or Microsoft Money 99 Personal & Business (Microsoft, 800-426-9400,; $85) to create and track invoices and record expenses.

When invoicing, be sure to itemize all charges, so that your clients understand what they’re paying for. Add penalties or fees for late payments.

Offer incentives for early invoice payments. Give customers a 1 percent to 2 percent discount for paying within the first 10 to 15 days of receiving your 30-day invoice. You’ll get paid more quickly and have more cash on hand for business needs.

5. Raise Your Rates When was the last time you raised your fees? Send out a letter announcing that you’re raising your rates. If clients know a fee hike is coming, they’ll be less likely to object when it happens. Consider offering a discount, or promise to bill at the older rate for a set amount of time, if clients contract for your services now, rather than after your rate increases.

6. Keep Inventory to a Minimum Inventory may cost more if you adopt a “just in time” approach to stocking the items you sell, but you won’t tie up cash reserves maintaining large inventories. Sell off old inventory by discounting stock on hand or “dumping” it at cost. Sales bring in cash you can use for other activities.

7. Get Cash Flow Tips From the Internet Check out the financial advice offered at the American Express Small Business Exchange ( com/smallbusiness), or type the keywords “cash flow” in the Search box at Money magazine’s archives (cgi. pathfinder, com/money/archive).

You’ll find great advice on preparing a cash flow statement and how to grow cash reserves at the Online Women’s Business Center ( docs/finance/index.html). Other useful articles on managing cash flow can be found in the Small & Home Based Business Library ( index.html) and at HOC’s own www.

COPYRIGHT 1999 Line56

COPYRIGHT 2008 Gale, Cengage Learning