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Cash Management Tools
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Posted On: Wednesday December 24th, 2003 at 12:00am EST
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Do you know where the money is hidden
in your business?
Look inside, first!
An area often overlooked by a capital-seeking entrepreneur is inside the business itself. Look inside and be creative before seeking external funds. You may have a stronger position, in future negotiations with investors and lenders if the company has a history of profitability and positive cash flow, developed from sound cash management. It may also help to avoid a dilution of the ownership.
Professional investors and capital providers look at the cash management systems developed within the firm. These systems aid the small business owner to maximize the value of internal funds while reducing the amount of external funding needed to grow the business.
Many times, a small business owner can reduce the need for external funds by focusing on three key areas: Accounts Payable, Inventory, and Accounts Receivable.
The objective is to get paid from your customer, before you need to pay your vendor, so that you don’t create a cash crunch.
| Other common cash management tools |
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1
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Whenever possible, negotiate credit terms with your vendors and suppliers.
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2
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Make materials and supply purchases "just in time".
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3
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Consider leasing equipment instead of purchasing it.
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4
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Sell obsolete inventory.
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5
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Collect any salary advances or notes payable from employees and officers.
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6
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Request customer deposits or payment in advance.
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7
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Consider accepting credit cards instead of offering internal credit terms.
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8
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If you offer credit, consider discounts or terms to encourage customers to pay sooner.
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9
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Collect on all outstanding accounts receivable. Follow through even on charge-offs.
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10
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Take available discounts for advance payment or quantity purchases, when appropriate.
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