Manage Cash Flow and Turn Opportunity into Profitability

March 22, 2015

With the fast-approaching busy season bringing increased customer demand and sales, it is important that you stay on track to make the coming months profitable for your business. There are several ways to help you manage your cash flow and achieve these objectives.

Forecasting—it's not just about the weather

Effective forecasting is a key element in providing you with a solid view of incoming business activities and the resulting cash flow trends. Your business can’t survive if you don’t have the cash to meet your operating costs. Aim to have a detailed forecast model that covers the next three years and provides cash flow transparency regarding the monthly, weekly or even daily cash activities. It does not have to be complicated or time consuming, but can be as simple as a spreadsheet that you review regularly.

Profitability - it's the bottom line of your business

To help ensure your continued success and to keep your profits on an upward trend, you should keep in mind the following critical factors:

  • The profitability of each of your customers and the contribution to the overall bottom line. While increased sales are critical to ongoing success, it is imperative that such increases in sales do convert to bottom line growth and cash flow to your business. This means that you keep the focus on maintaining profitable customers and, to the extent possible, re-evaluate the pricing of those customers that are less profitable. While discounts are a great incentive to bring new customers through your doors, they can affect your profitability. Understand your customers and your sales structure and consider reining in excessive discounts.
  • The time it takes to convert sales into cash flow. To the extent credit terms are provided for customers, it is important to stay on top of the collection cycle and maximize the cash inflow by the collection date. Know when payments from customers are coming in and keep an eye on relaxed credit terms that generate business as they can be risky. Start collection one week before the due date and consider offering incentives for early payment.

Keep your overhead from going over-the-top

Overhead costs are just as important as your sales. It is critical that you monitor and evaluate your overhead and fixed costs (e.g. rent, insurance, etc.). Look for renegotiation opportunities whenever it is feasible and at contract turns. You also need to be realistic regarding future revenue growth and ensure that expenses are properly matched and at levels that would result in net income growth.

Other important things to consider as you manage your cash flow through a growth period are the following:

  • Depending on the nature of your business, you may want to avoid large up-front cash outflow, in exchange on ongoing monthly expense.
  • Maintain steady growth; growing too fast can cost you. Think of your sustainable growth level given your capital structure.
  • Speak to your bank about an operating line of credit, in case of an emergency
  • Use business credit cards to manage float.

Remember, expenses can be cyclical so ensure you are tracking your operating costs on a regular basis and have a contingency plan to keep them manageable.

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This article is for informational purposes only and it is not intended to provide you with any personalized financial, marketing, accounting or tax advice. Neither Moneris Solutions Corporation (Moneris) nor any of its affiliates shall be liable for any direct, indirect, incidental, consequential or punitive damages arising out of use of any of the information contained in this article. Neither Moneris nor any of its affiliates warrant or make any representation regarding the use or the results of the use of the information, content and materials contained in this article in terms of their correctness, accuracy, reliability or otherwise.

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