HOW TO MANAGE HOME-BUSINESS CASH FLOW EFFECTIVELY

There’s one thing you are able to by no means afford to forget if you are operating a
enterprise out of one’s property –  money is king!

Whether it really is a multi-billion dollar empire, like Bill Gates’ Microsoft,
or the tiny mom-and-pop comfort retailer on the street corner, money may be the
life blood of the business.

In today’s uncertain economic system with ever rising interest rates, a lot of tiny
businesses with restricted monetary training are having troubles staying
alive, let alone prospering.  The truth is, 63% of new businesses don’t survive
six years — and most work-at-home individuals fail inside 6 months!

The main reason is poor money management.  To many self-employed men and women
neglect their money flow till it truly is too late to recover.  Suddenly, presto!
it ‘s back to your workplace job!  We do not want that to occur.

So the massive question is: will you have the ability to manage your cash flow
effectively?  Should you be not certain, then that you are on shaky ground.

Les Masonson, author of Money, Cash, Cash: The 3 Principles of Organization
Survival and Good results, says money flow is all about, “getting the money from
customers sooner, paying bills at the final achievable moment, concentrating
dollars to a single bank account, managing accounts payable, accounts
receivable and inventory more effectively, and squeezing every penny out of
your day-to-day business.”

Let’s break down Masonson’s ideas one at a time.

Quick COLLECTION

Within your company, you must collect funds as quick as you are able to.  To do so,
attempt these 4 points:

(1) Try to speed up buyer orders by having them fax their orders to you.

(two) Send out your invoices the same day goods are shipped, not a week or
two later.

(3) Indicate on your invoice when payment is due, and specify the penalty
interest for late payment.

(four)Consider employing a bank lock box (post office box strategically situated
close to customers to reduce mail time) to collect your mailed checks from
customers across the nation.  You lockbox bank picks up mail around the
clock including weekends, processes the checks and credits your account.
(Note:  this last step is most likely a lot more suitable for businesses grossing
much more than $25 million annually.  You could not be there yet, but maintain it in
mind for if you get there)!

DEPOSIT CHECKS Fast!

This appears only obvious, but it is incredibly essential.  Actually, here are
Masonson’s six sure-fire suggestions for obtaining the fastest availability
on deposited checks.

(1) Constantly deposit checks the identical day they are received.  Don;t hold
checks until the next day because you shed 1 day’s float.  Crucial point: you
can lose 3 days of float by not depositing Friday’s checks until
Monday.

(2) Receive availability of 0 to two  days on deposited checks.  Don’t let
your bank offer you the consumer availability of 1 to 5 days.  Be
persistent.  Ask the bank for its “availability schedule” and scan it to be
confident you are receiving rapidly availability of two days or less.

Each and every bank has its own availability schedule.  This is used to assign check
availability to customers, business (commercial accounts), and significant
corporate accounts.  Availability will be the number of days until it is possible to use
the funds deposited by check as money.  As an example, a $1,000 check
deposited these days and assigned a one-day availability can be withdrawn as
cash tomorrow.

(three) Do not deposit checks in a bank’s Automated Teller Machine or use the
Evening Depository because you’ve no evidence that you actually deposited the
checks you stated you did.  Bear in mind, you only obtain a receipt that shows
the time and dollar amount on the deposit at the ATM, and also you get no
receipt at the Night Depositor.

(four) MICR encode your customer’s checks (utilizing a machine that prints
magnetic ink on the bottom of the check) using the dollar quantity prior to
depositing them within the bank in the event you deposit more than 500 checks per month.
Banks charge three to five cents less for every encoded check.  Utilized encoded
machines price about $1,500.  (Check your Yellow Pages beneath bank equipment
for dealers).  Besides saving money, you may get one more advantage: faster
check availability.

(five) Ask you bank about its deadline for receiving availability on deposited
checks.  Some banks could call for a deposit of an encoded check by two p.m.,
even though the bank is open to five p.m.  Ensure you make this deadline,
otherwise you lose one day’s float.

(6) Just before employing a bank’s ATM for check deposits, learn the bank’s
availability deadline.  Some banks have a 12 noon cut-off time which signifies
that any checks deposited later are considered to be deposited the subsequent
day!  In that situation, you lose an complete day’s float, despite the fact that you did
your bit to get the checks cashed.

HAVE A SUPER TIGHT ACCOUNTS
RECEIVABLE POLICY

Many individuals think it is no huge deal to neglect accounts receivable till
bills are collectible.  This is poor cash flow policy.  Here are seven
superb tips for handling accounts receivable:

(1) Check the financial health of a new customer before offering them
credit.  1 way of carrying out this is by utilizing a rating service, for example Dun &
Bradstreet (1-800-234-3867).

(two) Ask a new customer for five enterprise references and don’t neglect to
call them.

(three) Do not offer too generous discounts, such as 3% for payment in 10 days.
A better rate is 1.5% money discount.  It costs you less.

(four) Charge a “late fee” of 2% per month to customers who pay late and
charge back customers who take discounts after the discount periods.

(five) Follow up on late payers with phone calls and letters.   These may possibly seem
a bit extreme, but the first letter really should go out the very day the amount
is 1 day late!  After 30 days late, start this sequence:

– send out a letter from your attorney
–turn over the account to a collection agency
–use a collection attorney

(6) Don’t send out new merchandise if bills remain unpaid.  Don’t forget that
negative debts hurt your bottom line!  Be vigilant and attempt to obtain at least
periodic payments from slow payers.

(7) Instruct your bank to automatically deposit “returned checks.”  Ask
your bank if they offer Return Item box service.  If they do, then use it
to redeposit your check and charge back the bank return item free to your
consumer.

These seven steps are tough and unrelenting, but they may make the
difference between a positive money flow month and a sluggish month for your
business.
It might seem a bit hypocritical to demand swift and exacting payment, and
then do what we suggest subsequent.  But just remind yourself, all (almost) is
fair in love and war and business.

DISBURSE YOUR Cash SLOWLY

Just the opposite of collecting in the earliest possible moment, you should
never pay a day sooner than you’ve got to, unless you get a discount for
doing so.  A lot of men and women believe in staying ahead of bills and paying
them as early as doable, but that’s just poor money management.  You want
to keep your funds inside your hands as long as you’ll be able to. Here are five
suggestions to slow down your disbursements:

(1) Pay your invoices on the last day they’re due, not just before.

(two) try to mail your payment on Thursday or Friday to pick up a few extra
days mail float over the weekend.

(three) Use company credit cards for travel, lodging, meals, and little
expenses for yourself and your employees.  With credit cards you typically
don;t have to make payment until 25 days after receiving the statement.
Use this float by investing the funds.  In total, you are able to typically maintain
your cash invested for 45 days from date of purchase.

(four) Do not issue advances to employees.  Have them use their personal credit
cards or company cards, if you provide them

(5) Contemplate setting up a remote disbursement checking account in one more
state to extend the check clearing float by at least a day.  This practice
is employed very successfully by 17% of big companies.  The downside of this
practice is that some vendors could complain about their delayed availability
on their bank deposit.  But this could be overcome by mailing them their
checks 1 day earlier.

Now, several tiny businesses neglect to reconcile their monthly bank
statements or assume that the bank by no means makes a mistake.  Banks do make
mistakes, and also you must stay on top of your disbursement to control your
cash flow.  In case you are one of those individuals who simply can’t stand to
balance you check book, you can use a bank’s standard account reconcilement
services for a low monthly price — $30 to $70  base charge and 5 to 7
cents a check.  When is it best to use a bank’s reconcilement service?
Here are six suggestions:

(1) If you have a monthly check volume of at least 500 checks.

(two) Once you need specialized reports.

(three) If you are currently performing your personal reconcilement.

(4) It is possible to discover software at a reasonable price that meets your needs.
Companies offering accounting software include DacEasy, Inc.
(800-877-8088); Real world Corp (800-678-6336) and Peachtree
(800-247-3224).

(five) Once you do not have your personal PC or any other kind of computer system.
(We already warned you about that).

(6)  Once you have no staff to complete it, or time to do it yourself.

NO EXTRA Dollars In your BANK ACCOUNT

A lot of businesses make the mistake of keeping too much funds in their bank
accounts to pay for bank services.  This funds could be used much more
effectively elsewhere — including to pay off a loan or to invest at a much more
competitive rate.  Many businesses have no idea how much dollars to leave in
the bank or what alternatives they have to compensate the bank.  Take some
time to learn what your minimum balance needs to be.

GET AN ACCOUNT ANALYSIS STATEMENT

How do you know how much money (bankers refer to this as “balances”) to
leave in your checking account to pay for bank’s services?  That’s a
question that more business owners need to be asking themselves.

(1) First, get a price list which shows how much your bank charges for
services like account maintenance, checks deposited, checks paid, stop
payments and wire transfers.

(2) Ask the bank to send you a monthly “Account Analysis Statement.”  The
analysis statement contains the average balance levels for the month –
both the ledger and the available balance — as well as a listing of
services used, their transaction volumes and cost.  This statement really should
be obtained in addition to the regular monthly bank statement.

(three) Look at the account analysis to see no matter whether you might be overcompensating
the bank.  Then pull out any excess funds and invest them in a
high-yielding money market mutual fund, for instance.

A word of advice:  Smaller banks may possibly not know what that you are talking about
once you ask for an account analysis.  Larger banks often offer such a
statement, but you’ve to ask for it.  And don’t let them charge you for
this kind of statement because it’s only an invoice.

INVENTORY IS NOT Money

Each item you might have sitting on your shelf need to eventually be transformed
into cash within your bank account, and the sooner the better.  As long as it is
inventory, it’s basically dead weight.  If it is not moving, you’re not
having money flow.

Here are six recommendations to minimize the cost of one’s inventory:

(1) Attempt to forecast as accurately as you can the day, week and month
what you expect to sell.

(2) If you’re dealing in far more than 1 item, determine which item accounts
for 80% of your sales.  Then minimize ordering other items that are selling
poorly or infrequently.

(three) Determine how quick you’ll be able to get inventory, once you order it.  Try to
order as late as you can.  Some firms can use “just-in-time” inventory
which enables them to get their order the day they need it.

(four) Determine your economic order quantity and do not order too much
inventory just to save a few pennies.

(five) Shop about and make certain you’re finding competitive prices.

(6) Develop a policy for determining what is obsolete inventory, and how
it is possible to get rid of it.  The best way to obtain rid of dead inventory is to
sell it whatever it is possible to get for it, even if that’s only 10 percent of what
you paid for it.  At least it will generate money flow.

Don’t FORGET CONTINUITY SALES

Once of the most exceptional ways of controlling and improving money flow
well into the future is by employing some thing called continuity of sales
or services.

Continuity sales are simply a contract to purchase products or services on
an installment basis for a fixed period of time.

That could sound complicated, but in practice, it really is not.  The best
example of a continuity sale can be a magazine subscription.  12, 24, or 36
issues delivered each and every month for X amount of dollars.  The bigger the
subscription, they better deal you get.  The publisher gets a lot more funds up
front, and the customer gets a better deal within the long run.

Continuity can apply to anything.

Let’s say you very own a dry cleaning organization.  How about an annual deal to
clean five shirts or blouses per week for set quantity  of cash?  Get folks to
pay your for the entire week up front for a lot of quickly cash flow. You’ll
trade a discount for getting enterprise, but you’ll ensure a steady money flow
for months to come.

Continuity works with just about any kind of product or service you might be
providing, from dry cleaning to to your personal consulting service.

You can structure payments for continuity sales on almost any basis, but
it’s best by far to go for complete payment up front.  After all, the
discount is based on a customer’s commitment, and they’ll be a lot a lot more
committed with their cash on the line.

LICENSING AGREEMENTS

After all is stated and done, in the event you were to list the assets of the company
you might have created, you’d almost certainly include your inventory, equipment,
accounts receivable, equity, and so on.

But by this time, especially if you have been reading carefully, you’ve
some thing far more — something that is not necessarily a physical “thing” such
as cash or inventory.

If you’ve been a clever organization person, you have come up with certain ads
that have outpulled your competitors.  You might have developed policies and
procedures that have kept your returns and refunds the lowest of any
about.  Or you might have come up with a money-making technique that is
completely unique.  If so, you’re potentially sitting on quickly source of
cash.

You’ll be able to license the rights to use any of one’s specialized techniques or
assets to other non-competitive businesses.  You can do it for a flat fee,
a percentage of profits, on a royalty basis, or any other way that makes
sense to you.  You can also conduct seminars to teach your techniques to
other would-be work-at-home entrepreneurs and charge whatever the market
will bear.  It’s easy to generate an extra $5,000 a month and much more on
the lecture circuit.  While that you are acquiring paid to spread your knowledge,
you will be drumming up a lot more business.

The knowledge you have inside your head right now could very well be worth a
lot of dollars.  It is only a matter of you looking inside yourself and at
your successes to see how you’ll be able to transform it all into real, hard money.

 

 

 

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