Home Keys to Cash Management Five Ways To Save on Business Insurance Avoid Key Budgeting Mistakes

Cash is king, and many small businesses are in danger of running out in today's slumping economy. Business owners continue to struggle to find cash flow strategies that will help them survive the recession. Recent research suggests companies both large and small are still struggling to stay financially viable. The stakes are high and decisions critical, so what can you do to keep your business afloat?

Manage Risk

Managing accounts receivables is one of the key strategies for keeping the cash flowing. What can you do to speed up customer payments? More than you might think. According to Pam Krank, president of credit risk and receivables management firm The Credit Department Inc. in West St. Paul, Minnesota, the most important step is to negotiate favorable terms up front in the sales process. Don't be afraid to ask for money up front in the form of a deposit or a retainer. Enforce your terms by immediately calling customers when invoices are past due. What should you do if a customer is experiencing cash flow problems? One option is to create formal payment notes with interest and agree to do all future business on a cash basis.

Understand Cash Needs

Cash flow projections are an important tool in understanding the cash flow needs of the business. Stacy Shaw, CPA and manager of Boyum and Barenscheer PLLP, CPAs and financial advisors in Minneapolis, Minnesota, recommends the following steps to improve cash flow management:

Conserve Cash

Conserving cash is a key strategy for weathering the recession. Many businesses are operating with a cost structure that can't be supported by soft revenues.

"Business owners need to act quickly and dramatically to adjust their cost structure to match revenue. They need to be willing to make difficult decisions, such as reducing personnel, to ensure the business remains viable," adds Shaw. Review expenses with a fine tooth comb; everything has to be on the table. Ask vendors for discounts or request an extension of terms. Lay off employees or freeze wages, if necessary, based on projections. Work with your financial advisors to help you remove emotion from the process and to be more objective when slashing expenses.

Prevention is often said to be the best medicine, and it holds true for cash flow as well. Strong financial controls, informed management of risk, decisive leadership, and open communication with financial advisors can help you to reduce the risk of cash-flow problems. Never lose sight of your cash flow. Review a statement of cash flow report monthly, if not weekly, to understand your financial position. "Don't sell your way out of this economy—cash flow your way out," advises Krank.

Special thanks to Wendy Kram, president of Edgestone Consulting Inc., and founder of Entrespect, an online resource for entrepreneurs.