If you watch the TV channel CNBC and in particular Larry Kudlow’s show called ‘The Kudlow Report,’ you will hear his constant preaching that “free market capitalism is the best path to prosperity.” If you own a business and want to stay on “the best path to prosperity” then the best way to get there is to watch your cash flow.
Here are 19 strategies to improve your cash flow or cash management with thanks to Floyd Talbot of AFB Business Solutions.
- Put safeguards in place over checks and any other negotiable instruments so theft or fraud is not a temptation.
- Put written procedures in place so employees cannot say they did not understand what you require them to do.
- Have a trusted third party test these written procedures such as your CPA or Enrolled Agent.
- Understand some simple financial ratios so you can very quickly and easily test the performance of the business, for example, Inventory turnover, Total assets turnover, Current ratio, Quick ratio etc. If you are not quite sure how to calculate these ratios have someone who does such as your CPA put together a one page cheat sheet you can use once a month. While ‘Ignorance is bliss’ the better metaphor is ‘Knowledge is power.’
- Find benchmarks for your industry and company size and analyze the performance of your company.
- Establish a cash flow budget to compare to actual expenditures. The goal is to track actual expenditures to the budget to ensure any deviations are understood and accepted, corrected or both.
- Post all cash transactions within your accounting system. This applies especially if you plan to sell your business as every one dollar you do not report may cost you two to four in your final purchase price.
- Put strong controls around petty cash. Thieves look for weaknesses. If they see a simple way to exploit a situation they will look for other ways.
- Require employees to take vacation. Many instances of fraud are only caught when the person that’s been doing the same job for 6 years finally takes a vacation and the replacement gets a call from a bank or vendor asking to approve a rogue process that no one knew was happening.
- Put controls around credit cards such as a ledger of who has them and have a different person to the user reconcile to the monthly statement. The same applies to gas or service station cards.
- Put stronger controls around debit cards and who has authorization. Once a purchase has been approved the money is gone.
- Minimize inter-account transfers except for sweep accounts and cash level requirements. The processing and book-keeping costs can add up and are a hidden cost to recognize.
- Pay attention to wire and EFT transfers and record them daily. Perhaps it is time to review these costs to see if another bank will have a lower cost.
- Run a cash flow statement regularly or have one produced and given to you. Discuss it with a third party to see if they have suggestions you had not considered or did not have the time previously to follow through.
- Review your internal controls which include wherever possible, only allowing one person to do each task. One person one task provides accountability and therefore one of the cheapest and safest way to manage and respond to lost money.
- Now that you have separated each task, segregate duties by assigning different people to check the work of someone else. For example, when new goods arrive have someone receive the order, verify the contents and then a second person put them away only after signing off that the quantity of goods were correct. Due to the volume of cash and goods they receive, Wal-Mart have some of the best practices.
- Where there are expensive or sensitive goods, restrict access. When you buy some electronic items, gift cards or computer software from Costco the goods are delivered from a separate storage area that requires a security pass to enter.
- Have random and ad hoc audits to check and verify.
- Provide safeguards and written procedures around cash handling, especially cash registers which should be reconciled daily. For example, the right policy is to have the same person always handle their cash drawer from checking the cash at the start of the day to removing and balancing their cash drawer at the conclusion of their shift and presenting a report with the cash to a third party.
Do not try and put in place all of the above in a week. Be disciplined and do one or two suggestions a week and watch your cash flow soar.
If you would like an audit or to review your cash management strategies, you can contact Floyd Talbot at (916) 585-9612 or email at [email protected]