A L Bean & Company

June 16, 2012

Small Business Cash Flow

Filed under: Uncategorized — artlbean @ 10:27 am

As most business owners know, cash is king. In today’s economic climate it is even more critical as customers are paying slower. According to a recent article in WSJ, large companies are paying vendors slower. In many cases these vendors are small businesses. Our research shows that they are also paying large vendors slower as well. The problem is that small businesses often have less leverage to insist on faster payments. Of course small businesses should have a good credit agreement with its customers that outline payment terms. Unfortunately, to continue business relationships, many small businesses often allow large customers to go around these guidelines to keep the business.

We encourage our clients to have good relationships with their bankers, and always have lines of credit available. These lines of credit can help bridge the gap between paying bills and collecting receivables. When customers are paying slower, it is good to have an alternate source of short term cash. It is a good idea to go to the bank before you need them. If business is not going well, it’s more difficult to get a loan. Lenders want to feel comfortable you can pay them back. One key variable in making this determination is positive cash flow.

In reality, if customers are paying slower, the cost of doing business increases. Reviewing your pricing strategy may be a good idea, but the unfortunate reality is that it is not easy to adjust prices upward in a tough economy. Reviewing your monthly expenses and finding ways to cut unnecessary expenses may help though. Though cash flow can be difficult in this environment, smart business owners have pre-planned and have the ability to weather the storm.

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