• <nav id="kescm"></nav>
  • <nav id="kescm"></nav>
  • Mar

    Finance fix.its: Cash flow


    Richard Brown,
    JNBA Financial Advisors:


    Tips for managing
    a small firm’s holy
    grail: cash flow

    by Richard Brown

    AS THE OWNER of every small business knows, earning a profit is one thing. Managing cash flow is another.

    Many small-business owners experience periods that seem flush. At these happy times, money is coming through the door freely. Meeting expenses (and even taking a cash distribution yourself) is a breeze. Life is good.

    Then there are periods when the till is literally empty, even though the accounting reports show that the business is thriving. Cash or no cash, you must meet payroll and other expenses. As many business owners have come to learn the hard way, income doesn’t pay the bills – cash does!

    The objective of effective cash flow management is to get better control over these two situations. Here are six practical tips, garnered from the better part of a decade in managing a small financial planning and wealth management company, which may help when it comes to cash flow management.

    Looking at past records, figure out what the typical cash flow pattern of your business is.

    If you know that certain large revenue and expense items will occur at approximately the same time each year, you can use that information to your advantage. Take the time to review and analyze both your budget and your cash flow each month, so you keep careful track of where you are. This will decrease your probability of being blindsided by an expenditure you didn’t expect.

    Try to budget expenses when cash is available. Delay an equipment purchase, company function, or other discretionary expenditure until you have the cash on hand. Plan for seasonal inflows. If you run a lawn cutting business, revenue will be pretty thin in January – but you will still have fixed expenses that must be met. Use times when you are cash rich to prepare for periods when you are not.

    Make certain you have a top-notch accountant who can tell you authoritatively what you can and cannot claim as expenses for tax purposes.

     Be diligent about maintaining proper receipts. Keep up on your estimated tax payments. You’ll be delighted if your firm’s income rises faster than expected, but if your tax payments are based on a lower estimate, next year’s cash flow can get whacked by a balance-due tax payment.

    In addition to tax advice, a good accountant can also provide objective, third-party advice and analysis of your business plan strategy. Your accountant can be a terrific asset as you refine your business model – offering a variety of “what-if” scenarios so you don’t put the business at undue risk while pursuing any variety of growth strategies.

    The accountant can help position the business in a way that illustrates its financial strengths to lenders or potential investors.

    Hire carefully. Remember that there can be substantial “hidden” costs in adding employees. It’s not just salary, but payroll tax, workers compensation, unemployment comp, and the biggie: health insurance. Small businesses can see their health insurance costs for employees vary greatly depending on age, family size, pre-existing health conditions, and any major illnesses employees suffer.

    If you need extra help but aren’t sure there’s enough work to justify hiring additional permanent staff and paying more for benefits, consider using a temporary help agency. This will put a limit on your commitment to additional personnel.

    Incidentally, a temp agency may offer better accountability than an independent contractor. If the contractor is unsatisfactory, you’re on the hook for recruiting and finding another one. When a temp worker does not pan out, on the other hand, you can always make a switch.

    Also, if the need for the extra staff proves to be permanent, you’ve already tried out the temp. True, you’ll likely need to buy them out from the temp agency, but you’ve found a person you like and you’ve eliminated the costs of recruitment and interviewing.

    Spread employee bonuses out over the entire year.

    This has two advantages: It provides an incentive and reward for better performance and it eases the cash flow burden of paying all the bonuses at one time. Remember that there is no rule that says companies must issue their bonuses at the end of the year. If, for some reason, February and August have historically been the best months for a company’s accounts receivable, it might be the best decision all around to hand out incentives and bonuses at those times.

    If you have a company pension plan, watch that the performance of the investments stays in line with actuarial assumptions.

    Otherwise, you can be forced to make a much larger pension contribution than you had expected.

    If you put the plan into effect at a time when investment returns were much better than they have been in recent years, you could face higher “make-up” contributions for years to come. In that case, you could be better off to freeze the plan and distribute its value.

    You might want to set up a 401(k) retirement plan instead, where you have virtually complete control over any company contributions. The downside to a 401(k), of course, is the much lower limit on the tax deferral available to the owners of the firm.

    Assume that every single so-called fixed expense is negotiable.

    This includes office space, office supplies, printing costs, copier costs, telephone, long distance and Internet service. Bid these out to be sure you’re getting the best deal. You’ll learn from every negotiation you do and get better at it. And if you’re dealing with a specialized area where you have little experience, go through a buyer or a broker.

    Good cash flow management is no deep, dark secret. Like any aspect of managing a small business, it’s something you can learn to do. You’ll get better at it as time passes – and have a much smoother flowing operation and far fewer of those “where’s the payroll going to come from this time?” headaches.

    Richard S. Brown

    CEO & Chairman
    RICHARD S. BROWN As CEO and Chairman of JNBA Financial Advisors, ranked as one of the country’s top independent wealth management firms, Richard has received national attention for his advocacy-first approach, business acumen, and commitment to community. He and the JNBA team help leaders of small, medium, and large companies and other clients with their business and personal financial management, often working with and overseeing clients’ other business advisors to ensure strong collaboration and focus.


  • <nav id="kescm"></nav>
  • <nav id="kescm"></nav>
  • image

    search for

    Variety show






    Second-hand housing