In response to the slow economy, today’s small businesses should consider refining their focus on the efficiency of their business operations and cash management processes. An effective and efficient approach to managing working capital has become critical in an era of tightening credit where adequate cash flow is paramount in maintaining liquidity and sustaining business operations.
Within this challenging environment streamlining the management of your company’s cash flow and related payment processes is becoming increasingly important. In the current economy, it’s all the more important that business owners find new ways to improve their cash management process efficiency and improve liquidity in an effort to boost your bottom line.
Improve your cash management process. Today’s small businesses are being driven by the tough economy to find better and more efficient ways to manage their cash, including streamlining their payables and receivables processes. The primary focus when improving your cash management process should be to eliminate as many paper processes as possible and increase your visibility into your company’s expenses. A good way to do this is to utilize expense management and accounting software and use an electronic form of payment, such as a business credit or debit card, instead of checks. This will save you labor costs in your accounts payable function and give you much better visibility into what you are actually spending.
Protect working capital. When maintaining capital becomes more difficult due to declining access to credit, small businesses can become more adept at better managing existing cash resources in a tightening credit environment. The primary focus of your business should be to maintain adequate levels of working capital for your core business operations. Now is not the time to considering investing existing capital in new or untried ventures. You should also seek to more strategically manage capital by seeking longer payment cycles or more favorable terms with key vendors or suppliers. You should also work toward consolidating purchases to reduce your number of required payments to suppliers in any given month.
Improve spending controls. By improving the efficiency of your cash management process you should benefit from greater visibility into your spending. Use this enhanced visibility to more accurately asses what your business is buying, from whom you are buying and for how much. Once you’ve analyzed your spending, link each spending category back to the strategic goals for your business to make sure you’re getting the intended return on those expenditures. If not, than adjust your spending accordingly.
So, if your business is being negatively impacted by the tough economy, don’t hesitate to take these steps to ensure your cash management, working capital and spending controls are being handled in an optimum fashion. Your bottom line will thank you.
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