Managing Your Company’s Cash
Flow
It’s no secret—inadequate cash flow is a leading cause of financial
failure. In a tough economic environment, it’s more important than ever to
focus on cash flow. Adopting some of the following “best practices” can help
you manage—and enhance—your firm’s cash flow.
Prepare Cash Forecasts
Map out the way you will bill jobs before you begin work; then use that
information when preparing cash flow projections. Err on the conservative
side and be sure to forecast both regular expenses and those that come up
infrequently, such as annual insurance premiums.
Control Spending
Keeping a lid on spending allows you to hold on to cash for those times when
you really need it. Run the numbers and, if they appear compelling, look
into
leasing equipment and heavy machinery rather than buying. To the extent
possible, avoid job borrowing—using overbillings on one job to finance
another. Setting aside the money collected on a project to pay that
project’s expenses avoids a cash squeeze down the road.
Manage Your Payables
Take advantage of creditor payment terms and time your payments to conserve
cash. Don’t get too carried away, however—you don’t want to take any
actions that might negatively impact your credit rating. If you don’t
already do so, use electronic funds transfer to make payments on the last
day they are due. Review vendor discounts for early payment and take
advantage of terms that are favorable to you.
Tighten Receivables
Know the payment terms outlined in your contracts. Issue invoices promptly,
supplying any required supporting documentation, and contact customers as
soon as you detect any delays in payment. Of course, you can also encourage
customers to pay their bills quickly by offering a discount.
Work-In-Process is provided by
Somerset for our clients and other interested persons upon request.
Since technical information is presented in generalized fashion, no
final conclusion on these topics should be made without further review.
For additional information on the issues discussed,
please contact
Ken
Hedlund,
Jay Feller,
Steve George,
Chris
Mayfield or
Rebecca Ogle
of our
Construction & A/E Team.
This document is not intended or written to be used, and cannot be used,
for the purpose of avoiding tax penalties that may be imposed on the
taxpayer.
Somerset CPAs,
P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
www.somersetcpas.com
