Whether it is a multi-billion dollar empire, such as Bill Gates' Microsoft, or the tiny mom-and-pop convenience store on the street corner, cash is the life blood of the business.

There’s something you can never afford to forget when you are running a business out of your home —  cash is king! Whether it is a multi-billion dollar empire, such as Bill Gates’ Microsoft, or the tiny mom-and-pop convenience store on the street corner, cash is the life blood of the business .


In today’s uncertain economy with ever rising interest rates, many small

businesses with limited financial training are having problems staying

alive, let alone prospering.  In fact, 63% of new businesses don’t survive

six years — and most work-at-home people fail within 6 months!


The primary reason is bad cash management.  To many self-employed people

neglect their cash flow until it is too late to recover.  Suddenly, presto!



it ‘s back to your office job!  We don’t want that to happen.


So the big question is: will you be able to manage your cash flow

effectively?  If you are not sure, then you are on shaky ground.


Les Masonson, author of Cash, Cash, Cash: The Three Principles of Business

Survival and Success, says cash flow is all about, “getting the money from

customers sooner, paying bills at the last possible moment, concentrating

money to a single bank account, managing accounts payable, accounts

receivable and inventory more effectively, and squeezing every penny out of

your daily business.”


Let’s break down Masonson’s tips one at a time.




In your business, you should collect money as fast as you can.  To do so,

try these four things:


(1) Try to speed up customer orders by having them fax their orders to you.


(2) Send out your invoices the same day goods are shipped, not a week or

two later.


(3) Indicate on your invoice when payment is due, and specify the penalty

interest for late payment.


(4)Consider using a bank lock box (post office box strategically located

near customers to reduce mail time) to collect your mailed checks from

customers across the country.  You lockbox bank picks up mail around the

clock including weekends, processes the checks and credits your account.

(Note:  this last step is probably more appropriate for businesses grossing

more than $25 million annually.  You may not be there yet, but keep it in

mind for when you get there)!




This seems only obvious, but it’s extremely important.  In fact, here are

Masonson’s six sure-fire suggestions for getting the fastest availability

on deposited checks.


(1) Always deposit checks the same day they are received.  Don;t hold

checks until the next day because you lose one day’s float.  Key point: you

can lose three days of float by not depositing Friday’s checks until



(2) Obtain availability of 0 to 2  days on deposited checks.  Don’t let

your bank give you the customer availability of 1 to 5 days.  Be

persistent.  Ask the bank for its “availability schedule” and scan it to be

sure you’re receiving fast availability of two days or less.


Each bank has its own availability schedule.  This is used to assign check

availability to consumers, business (commercial accounts), and large

corporate accounts.  Availability is the number of days until you can use

the money deposited by check as cash.  For example, a $1,000 check

deposited today and assigned a one-day availability can be withdrawn as

cash tomorrow.


(3) Don’t deposit checks in a bank’s Automated Teller Machine or use the

Night Depository since you have no evidence that you actually deposited the

checks you said you did.  Remember, you only receive a receipt that shows

the time and dollar amount on the deposit at the ATM, and you get no

receipt at the Night Depositor.


(4) MICR encode your customer’s checks (using a machine that prints

magnetic ink on the bottom of the check) with the dollar amount before

depositing them in the bank if you deposit more than 500 checks per month.

Banks charge 3 to 5 cents less for each encoded check.  Used encoded

machines cost about $1,500.  (Check your Yellow Pages under bank equipment

for dealers).  Besides saving money, you may get another benefit: faster

check availability.


(5) Ask you bank about its deadline for receiving availability on deposited

checks.  Some banks may require a deposit of an encoded check by 2 p.m.,

even though the bank is open to 5 p.m.  Make sure you make this deadline,

otherwise you lose one day’s float.


(6) Before using a bank’s ATM for check deposits, find out the bank’s

availability deadline.  Some banks have a 12 noon cut-off time which means

that any checks deposited later are considered to be deposited the next

day!  In that case, you lose an entire day’s float, even though you did

your bit to get the checks cashed.





Many people think it is no big deal to neglect accounts receivable until

bills are collectible.  This is bad cash flow policy.  Here are seven

excellent tips for handling accounts receivable:


(1) Check the financial health of a new customer before offering them

credit.  One way of doing this is by using a rating service, such as Dun &

Bradstreet (1-800-234-3867).


(2) Ask a new customer for five business references and don’t neglect to

call them.


(3) Don’t offer too generous discounts, such as 3% for payment in 10 days.

A better rate is 1.5% cash discount.  It costs you less.


(4) Charge a “late fee” of 2% per month to customers who pay late and

charge back customers who take discounts after the discount periods.


(5) Follow up on late payers with phone calls and letters.   These may seem

a bit extreme, but the first letter should go out the very day the amount

is one day late!  After 30 days late, start this sequence:


— send out a letter from your attorney

–turn over the account to a collection agency

–use a collection attorney


(6) Don’t send out new merchandise if bills remain unpaid.  Remember that

bad debts hurt your bottom line!  Be vigilant and try to get at least

periodic payments from slow payers.


(7) Instruct your bank to automatically deposit “returned checks.”  Ask

your bank if they offer Return Item box service.  If they do, then use it

to redeposit your check and charge back the bank return item free to your



These seven steps are tough and unrelenting, but they may make the

difference between a positive cash flow month and a sluggish month for your


It may seem a bit hypocritical to demand swift and exacting payment, and

then do what we suggest next.  But just remind yourself, all (almost) is

fair in love and war and business.




Just the opposite of collecting at the earliest possible moment, you should

never pay a day sooner than you have to, unless you get a discount for

doing so.  A lot of people believe in staying ahead of bills and paying

them as early as possible, but that’s just poor cash management.  You want

to keep your money in your hands as long as you can. Here are five

suggestions to slow down your disbursements:


(1) Pay your invoices on the last day they’re due, not before.


(2) try to mail your payment on Thursday or Friday to pick up a few extra

days mail float over the weekend.


(3) Use business credit cards for travel, lodging, meals, and small

expenses for yourself and your employees.  With credit cards you typically

don;t have to make payment until 25 days after receiving the statement.

Use this float by investing the money.  In total, you can typically keep

your money invested for 45 days from date of purchase.


(4) Don’t issue advances to employees.  Have them use their personal credit

cards or business cards, if you provide them


(5) Consider setting up a remote disbursement checking account in another

state to extend the check clearing float by at least a day.  This practice

is used very successfully by 17% of large companies.  The downside of this

practice is that some vendors may complain about their delayed availability

on their bank deposit.  But this can be overcome by mailing them their

checks one day earlier.


Now, many small businesses neglect to reconcile their monthly bank

statements or assume that the bank never makes a mistake.  Banks do make

mistakes, and you must stay on top of your disbursement to control your

cash flow.  If you are one of those people who simply can’t stand to

balance you check book, you can use a bank’s standard account reconcilement

services for a low monthly price — $30 to $70  base charge and 5 to 7

cents a check.  When is it best to use a bank’s reconcilement service?

Here are six suggestions:


(1) When you have a monthly check volume of at least 500 checks.


(2) When you need specialized reports.


(3) When you are currently performing your own reconcilement.


(4) You can find software at a reasonable price that meets your needs.

Companies offering accounting software include DacEasy, Inc.

(800-877-8088); Real world Corp (800-678-6336) and Peachtree



(5) When you don’t have your own PC or any other kind of computer system.

(We already warned you about that).


(6)  When you have no staff to do it, or time to do it yourself.




Many businesses make the mistake of keeping too much money in their bank

accounts to pay for bank services.  This money could be used more

effectively elsewhere — such as to pay off a loan or to invest at a more

competitive rate.  Many businesses have no idea how much money to leave in

the bank or what alternatives they have to compensate the bank.  Take some

time to find out what your minimum balance needs to be.




How do you know how much money (bankers refer to this as “balances”) to

leave in your checking account to pay for bank’s services?  That’s a

question that more business owners should be asking themselves.


(1) First, get a price list which shows how much your bank charges for

services like account maintenance, checks deposited, checks paid, stop

payments and wire transfers.


(2) Ask the bank to send you a monthly “Account Analysis Statement.”  The

analysis statement contains the average balance levels for the month —

both the ledger and the available balance — as well as a listing of

services used, their transaction volumes and cost.  This statement should

be obtained in addition to the regular monthly bank statement.


(3) Look at the account analysis to see whether you are overcompensating

the bank.  Then pull out any excess funds and invest them in a

high-yielding money market mutual fund, for example.


A word of advice:  Smaller banks may not know what you are talking about

when you ask for an account analysis.  Larger banks often offer such a

statement, but you have to ask for it.  And don’t let them charge you for

this kind of statement since it is only an invoice.




Every item you have sitting on your shelf should eventually be transformed

into cash in your bank account, and the sooner the better.  As long as it’s

inventory, it’s basically dead weight.  If it is not moving, you’re not

having cash flow.


Here are six recommendations to minimize the cost of your inventory:


(1) Attempt to forecast as accurately as you can the day, week and month

what you expect to sell.


(2) If you are dealing in more than one item, determine which item accounts

for 80% of your sales.  Then minimize ordering other items that are selling

poorly or infrequently.


(3) Determine how fast you can get inventory, once you order it.  Try to

order as late as you can.  Some firms can use “just-in-time” inventory

which enables them to receive their order the day they need it.


(4) Determine your economic order quantity and don’t order too much

inventory just to save a few pennies.


(5) Shop around and make sure you are getting competitive prices.


(6) Develop a policy for determining what is obsolete inventory, and how

you can get rid of it.  The best way to get rid of dead inventory is to

sell it whatever you can get for it, even if that’s only 10 percent of what

you paid for it.  At least it will generate cash flow.




Once of the most exceptional ways of controlling and improving cash flow

well into the future is by employing something called continuity of sales

or services.


Continuity sales are simply a contract to purchase products or services on

an installment basis for a fixed period of time.


That may sound complicated, but in practice, it actually is not.  The best

example of a continuity sale is a magazine subscription.  12, 24, or 36

issues delivered each month for X amount of dollars.  The bigger the

subscription, they better deal you get.  The publisher gets more money up

front, and the customer gets a better deal in the long run.


Continuity can apply to anything.


Let’s say you own a dry cleaning business.  How about an annual deal to

clean 5 shirts or blouses per week for set amount  of money?  Get people to

pay your for the entire week up front for a lot of fast cash flow. You’ll

trade a discount for getting business, but you’ll ensure a steady cash flow

for months to come.


Continuity works with just about any kind of product or service you are

offering, from dry cleaning to to your personal consulting service.


You can structure payments for continuity sales on almost any basis, but

it’s best by far to go for complete payment up front.  After all, the

discount is based on a customer’s commitment, and they’ll be a lot more

committed with their money on the line.




After all is said and done, if you were to list the assets of the company

you have created, you’d probably include your inventory, equipment,

accounts receivable, equity, and so on.


But by this time, especially if you have been reading carefully, you have

something more — something that is not necessarily a physical “thing” such

as cash or inventory.


If you’ve been a clever business person, you have come up with certain ads

that have outpulled your competitors.  You have developed policies and

procedures that have kept your returns and refunds the lowest of any

around.  Or you may have come up with a money-making technique that is

completely unique.  If so, you are potentially sitting on fast source of



You can license the rights to use any of your specialized techniques or

assets to other non-competitive businesses.  You can do it for a flat fee,

a percentage of profits, on a royalty basis, or any other way that makes

sense to you.  You can also conduct seminars to teach your techniques to

other would-be work-at-home entrepreneurs and charge whatever the market

will bear.  It’s easy to generate an extra $5,000 a month and much more on

the lecture circuit.  While you are getting paid to spread your knowledge,

you will be drumming up more business.


The knowledge you have in your head right now could very well be worth a

lot of money.  It’s only a matter of you looking within yourself and at

your successes to see how you can transform it all into real, hard cash.

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