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Small Business Tips:
Cash Management
Dawn M. Minotas, CPA
October 31, 2017
2
Why Manage Cash Flow?
• Cash is “King”
 Most common reasons businesses fail
‒ Poor cash flow management
 Lack of cash = bankruptcy
 Management can improve survival rate
‒ Absence of performance/cash monitoring
 Know cash position at all times
 Enables maximization of cash
‒ Absence of cash forecasting
 Problem not recognized until too late
3
Working Capital
• Current assets minus current liabilities
 Current assets
‒ Cash
‒ Inventory
‒ Accounts Receivable
 Short-term debt
‒ Accounts Payable
‒ Lease/loan payments
‒ Payroll liabilities
4
Accounts Receivable
• Goal: Get paid as quickly as possible
 Formal invoicing policy
 Check credit history
 Invoice sooner
 Invoice more frequently
 Payment terms
 A/P clerks
 Statements
 Follow up - persistence
5
Accounts Payable
• Goal: Lengthen amount of time to pay
 Negotiate terms and prices
 Monitor contract renewal dates
 Discounts/trade
 Coordinate terms with receivables
 Manage bank fees
6
Inventory
• Goal: Optimize inventory on-hand
 Too little – supply problems
 Too much – ties up cash
 Know your inventory turnover ratio
 Inventory mix
 Just-in-Time inventory
 Consignment
7
Sources of Cash
• Float
 Cash
‒ Checks
‒ Sweep accounts
 Credit cards
‒ Bill not due for up to one month
‒ Do not carry a balance
• Reserves
 Overdraft protection
 Savings/money market accounts
 Payroll account
 Tax account
8
Uses of Cash
• Debt
 Pay down/off high interest rate debt
‒ Extra principal payments
• Investments
 Fixed asset purchases
 Short-term higher interest rate products
 Retirement funds (401(k), IRA, etc.)
‒ Work with banker and accountant
9
Monitor/Forecast Cash
• Goal: Maximize cash position
 Monitor daily or weekly
‒ Always know cash balance
‒ Track inflows/outflows and timing
‒ Reconcile bank accounts monthly
 Forecast weekly or monthly
‒ Project inflows and outflows
‒ Software or simple Excel spreadsheet
 Know your break-even point
‒ Sales needed to cover costs – no profit
‒ Total fixed expenses/contribution margin %
10
Conclusion
• Managing cash is the most important aspect of running a
small business
• All decisions are affected by cash
• Maximize cash position through
 Accounts receivable/payable
 Inventory
 Debt/Investments
• Monitor and forecast cash
• Know your cash balance at all times
11
Contact
Dawn M. Minotas, CPA
Managing Director,
Small Business Services
(440) 449-6800
dminotas@skodaminotti.com

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Cash Management Tips and Techniques for Small Businesses

  • 1. Small Business Tips: Cash Management Dawn M. Minotas, CPA October 31, 2017
  • 2. 2 Why Manage Cash Flow? • Cash is “King”  Most common reasons businesses fail ‒ Poor cash flow management  Lack of cash = bankruptcy  Management can improve survival rate ‒ Absence of performance/cash monitoring  Know cash position at all times  Enables maximization of cash ‒ Absence of cash forecasting  Problem not recognized until too late
  • 3. 3 Working Capital • Current assets minus current liabilities  Current assets ‒ Cash ‒ Inventory ‒ Accounts Receivable  Short-term debt ‒ Accounts Payable ‒ Lease/loan payments ‒ Payroll liabilities
  • 4. 4 Accounts Receivable • Goal: Get paid as quickly as possible  Formal invoicing policy  Check credit history  Invoice sooner  Invoice more frequently  Payment terms  A/P clerks  Statements  Follow up - persistence
  • 5. 5 Accounts Payable • Goal: Lengthen amount of time to pay  Negotiate terms and prices  Monitor contract renewal dates  Discounts/trade  Coordinate terms with receivables  Manage bank fees
  • 6. 6 Inventory • Goal: Optimize inventory on-hand  Too little – supply problems  Too much – ties up cash  Know your inventory turnover ratio  Inventory mix  Just-in-Time inventory  Consignment
  • 7. 7 Sources of Cash • Float  Cash ‒ Checks ‒ Sweep accounts  Credit cards ‒ Bill not due for up to one month ‒ Do not carry a balance • Reserves  Overdraft protection  Savings/money market accounts  Payroll account  Tax account
  • 8. 8 Uses of Cash • Debt  Pay down/off high interest rate debt ‒ Extra principal payments • Investments  Fixed asset purchases  Short-term higher interest rate products  Retirement funds (401(k), IRA, etc.) ‒ Work with banker and accountant
  • 9. 9 Monitor/Forecast Cash • Goal: Maximize cash position  Monitor daily or weekly ‒ Always know cash balance ‒ Track inflows/outflows and timing ‒ Reconcile bank accounts monthly  Forecast weekly or monthly ‒ Project inflows and outflows ‒ Software or simple Excel spreadsheet  Know your break-even point ‒ Sales needed to cover costs – no profit ‒ Total fixed expenses/contribution margin %
  • 10. 10 Conclusion • Managing cash is the most important aspect of running a small business • All decisions are affected by cash • Maximize cash position through  Accounts receivable/payable  Inventory  Debt/Investments • Monitor and forecast cash • Know your cash balance at all times
  • 11. 11 Contact Dawn M. Minotas, CPA Managing Director, Small Business Services (440) 449-6800 dminotas@skodaminotti.com