See Also:
Cash Flow After Tax
Cash Cycle
Financing A Startup Company
How to Collect Accounts Receivable
Monetize
How to Develop A Daily Cash Report
Cash Flow Statement

Cash is in Your Business

I received a call from a desperate prospect, Sue. As always, I started asking questions about the business. To begin, I asked “Is your business growing?” She answered “Yes”. Then I asked her “What does your business need?” Frustrated she answered I NEED CASH. My next question was “Why do you need the cash, Sue?” Frustrated more than ever she replied “TO PAY MY BILLS!”

Two Sources of Cash

Seeing I was about ready to lose her in frustration I ask “Where does the cash come from in your business?” She responded calmly “What do you mean?” I responded there are two sources of cash for your business; internal and external. I continued by telling her we need to understand the cash source to determine and solve the problem. That is the only way we can ultimately get you the cash in the most cost effective way to satisfy your needs, paying your bills.
She then said “I still don’t understand your comment about internal and external?” I told her that internal cash flow in a growth business is generated by selling your goods or services at a profit. I then asked her what she sold in her business. She told me she manufactured products and sold them to large retail stores. I asked a couple more questions about her profit margins and satisfied myself that her margins were more than adequate.

A/R Collections

Then I asked her about her accounts receivable collection efforts and inventory management. She asked me “Why would you care about that?” Not waiting for a response she continued “I think I need a larger line of credit from my bank and they do not seem to be interested.” Increasing your line of credit with the bank may not be the most cost effective way to solve your cash flow needs. I asked her again about her accounts receivable collections and inventory management. Reluctantly, she told me that her receivables are past due, she is at her maximum credit line with her suppliers, and she does not have inventory controls.
Now that I understood her situation, I showed her that speeding up her accounts receivable collection process, and managing her inventory would allow her to get her suppliers back within their credit terms, and pay down her line of credit at the bank. The combination of these three results gave her the operating capital she needed to continue her growth for an estimated six months. Therefore, we could pursue external cash sources without the pressure of having to make a decision today. Start with knowing that cash is in your business.
For more tips on how to improve cash flow, click here to access our 25 Ways to Improve Cash Flow whitepaper.