A strategic look at cash flow

Business owners who take a proactive approach are able to avoid problems and create new growth opportunities


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A recent survey from Citizens Bank found that a quarter of small business owners are using their personal bank accounts for their companies instead of opening a separate account dedicated to the business. 

This practice creates risk – not just for the business, but for the personal finances of the owner.

Using a personal account for business finances is an easy mistake to make when starting out but it can quickly become a liability. For example, paying personal expenses using business money, or vice versa, makes it far more difficult for a small business owner to get their accounting right at tax time. 

Granite State business owners also need a separate account for business so they can build a financial history that they can later use to apply for credit and other products or services they need to run their business. 

Finally, not having a separate account can make it too easy for companies to spend personal funds that may be needed for personal mortgage payments and other important household expenses.

Managing cash flow is one of the most important yet under-appreciated challenges faced by small businesses today. Business owners who take a proactive and strategic approach to managing cash are able to avoid problems and create new growth opportunities through reinvestment and making their capital work better for them. 

Having a strategic approach to managing cash flow is important, and the following seven tips can be helpful:

• Understand your operating cycle: Regardless of size, every business must deposit, monitor and manage cash, make payments, fund purchases, invest in their company and receive payments. Reviewing and understanding each step in this cash flow cycle can help a company work more efficiently. 

• Encourage faster payments: Can you provide an incentive or discount to customers or vendors to encourage them to pay faster? The sooner a payment is received, the sooner you can put that revenue to work for your company. Collections services like lockbox also can help post payments to your accounts more quickly.

• Consider remote deposits: Some banks offer customers the opportunity to make remote check deposits from their mobile device, sparing them trips to the branch. This allows companies to save time and to keep their workforce focused on operations – a benefit of particular importance for companies with only a few employees. 

• Review your payroll process: If you pay your employees twice a month instead of every other week, you will be managing 24 payroll periods instead of 26 during the course of a year, making your company more efficient. Direct deposit of employees’ paychecks into their accounts can also create efficiencies. 

• Evaluate real-time wires: If your small business is buying or selling overseas, real-time wires may be an option in lieu of visiting a bank branch. Some banks have the ability for customers to make ACH payments from their desk or office, which saves time and increases productivity.

• Manage outgoing payments in an advantageous manner: Banks can help establish relationships with credit card companies that can expedite payments from customers while giving additional timing or flexibility for repayment to settle your account.

• Have a Plan B: If you assume you can borrow funds to cover a cash shortfall, be sure to have a loan or line of credit setup before the cash is actually needed. Waiting until the shortfall occurs leaves you in a ditch as most financial institutions will hesitate to lend money when your business is already in financial straits.

It’s vital for business owners to take the time to understand their finances and their entire cash management process in order to make improvements that ultimately can help their bottom line. 

Alan Wyosnick is Citizens Bank’s regional director for New England.

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