BOTTOM LINE: 9 Ways to manage cash flow

Cash management is critical to your bottom line–follow these good business basics to keep the money flowing

By William J. Lynott

Generating revenue is a primary focus in the successful operation of your practice, but that's only the beginning of the process that leads to a healthy bottom line. Once you have a steady flow of cash coming in, you must manage the movement of that money.

The principles of professional cash management are not difficult to learn, but they are easy to neglect. Here are nine powerful techniques that can help you to improve your cash flow and net income right now:

1 Don't allow your money to lie idle. If you don't already have one, open a money market account at your bank and have it linked to your business checking account for telephone or online transfers.

Deposit your daily receipts into the money market account where they will immediately start drawing interest. Never deposit receipts directly into your checking account. Keep a minimum balance in the checking account and transfer cash by phone or online only as needed to cover checks written.

Also, never leave checks or cash lying around in a desk drawer until you can get to the bank.

2 Don't pay bills too fast. There's good reason why checks are slow to come in from people who owe you money. Hanging on to cash as long as possible keeps that money available to draw interest.

That's why it's important for you to set up a system to pay your bills only when they come due. It's easy to do and is another rung on the ladder of professional cash management.

Important: Don't jeopardize your credit standing by paying bills late. Pay your bills when they are due—not before, not after.

It's also especially important to avoid late payment on credit card bills because of the penalties.

3 Be aggressive about collecting accounts receivable. If you do your own billing, it's important not to allow receivables to go untended. You've earned that money and you have a right to it.

While paperwork and dunning late-paying clients may not be your favorite pastime, setting up an accounts receivable file and following through on late payments is as important to your financial success as the quality of your services.

If your clients learn that you are cavalier about money owed to you, you can be certain they will stretch your patience (and your cash flow).

4 Diversify to keep cash flowing. This is an important strategy when appointments are off and retail sales are down.

During slack times, any work is better than no work at all. Consider offering special services or products at sale prices that would not satisfy your usual parameters of profitability during better times.

That approach makes sense by providing work and smoothing out the inevitable ups and downs of cash inflow.

5 Maintain a cash cushion. Whenever possible, keep enough cash in interest-bearing accounts to cover normal operating expenses for three to six months.

There is nothing like the peace of mind that comes when you don't have to sweat out next month's rent or next week's payroll during a business slowdown. Also, keep in mind that your cushion money is making money for you in those interest-bearing accounts.

6 Develop a personal relationship with your banker. Handling money is a banker's job, and most are very good at it.

Even if your operation is small, it's a good idea to have a personal relationship at the bank where you do business. Discuss your financial picture honestly with the manager of your local branch. You'll get some good ideas and a favorable ear should you ever need financial help.

7 Let your computer help you to manage your cash flow. Trust your finances to your computer. The financial reports and analyses that off-the-shelf programs such as Quicken or Money can produce can be vitally important tools for improving cash flow and bottom-line profits.

These programs are infinitely easier to use than ever. and they will teach you in dramatic fashion how much you can benefit from a sensible cash management system.

8 Harness the magic of impulse sales. Ever notice those inexpensive items lined up at the cash registers of your local supermarket or drugstore? They're known as impulse items, products that are inexpensive enough to be bought on impulse.

Don't be misled by the low selling price of these items. Almost all of the gross profit on impulse sales moves to your bottom line, producing a higher percentage of net profit than your normal transactions.

The basic service to the client has paid for your operating and labor costs, so any additional sale increases your costs only by the cost of the product.

9 Spread the word. To manage cash, you must have a steady flow of the stuff coming in. Many eyecare professionals keep so busy dealing with day-to-day problems that they never get around to putting together an aggressive marketing program. Some owners shy away from all but the most obvious ways to promote their businesses. Their entire marketing program consists of a website or an ad in the Yellow Pages.

That's a serious mistake. Building a growing and profitable practice requires an ongoing marketing program. There is no other way. Competitive prices alone won't do it. A high degree of professional skill alone won't do it. As one entrepreneur puts it, "You have to tell the world your story. If you don't do it, no one else will."

Taken individually, good cash management techniques may seem inconsequential. However, when you blend them together, they will form a significant contributor to your bottom line and economic future. EB