Positive cash flow ‘most important’ thing

Cash is king. Money is power. Money is energy. Money makes the world go round.

KELOWNA, B.C. — Cash is king.

Money is power.

Money is energy.

Money makes the world go round.

Certified general accountant Lesley McNamara of Kelowna, B.C., has heard all the cliches and agrees with them all.

“Cash flow is the life of a business,” said McNamara, who recently led a cash flow management workshop for the Okanagan Science & Technology Council and the Kelowna Chamber of Commerce.

“It’s like breathing in and out for a company. The breath in is the cash in and the breath out is the cash out.”

The session was part of the council and chamber’s Thrive Not Survive series of seminars aimed at helping companies that make it through this economic downturn stronger than ever.

Since positive cash flow is essential for a business to survive and thrive, McNamara’s insights and advice were a natural for the series.

“Cash flow is not the same as cash in the bank,” pointed out McNamara.

“Really it’s about paying attention to the cycles of money in and money out your business has.”

Such “paying attention” can mean the difference between operating in the black or the red for a company.

For instance, a retail business will have cash coming in daily, as will an Internet company that requires payment up front.

A service business like a landscaper or accountant may invoice monthly and get money in sporadically.

To increase cash flow, companies that generally invoice monthly may consider taking credit cards.

Credit card payments are immediate money in the bank — less a three per cent service charge.

The company has to determine if having the cash right away (less the service fee) is preferable to waiting the six the eight weeks it might take with monthly billing.

“Money coming in — whether it comes in daily or sporadically — is not easy money or money to be blown,” stressed McNamara.

“Figure out who you need to pay in order and pay them as you have the money. And, especially in tough times, buy only what you need, not what you want.”

For instance, McNamara gave the example of a woman who started up a bakery and immediately picked out a truck with an $800-a-month lease to do deliveries.

Problem was, she hadn’t built up enough customers requiring deliveries to justify such an expense.

“No unnecessary expenses,” said McNamara.

Effective collections also improve cash flow.

“The squeaky wheel gets the cash,” said McNamara.

“Set up a time each week to make calls to customers to give them friendly reminders that their payment is due. It’s a time to make contact with customers and find out when you can expect the money.”

Without being pushy, you can ask when the customer is doing their next cheque run and if you are on it.

Then mention that you will follow up a week after the cheque run day if you haven’t received payment.

“Money is energy,” stated McNamara.

“If you make your collection calls with a friendly demeanour clients will sense that positive energy and want to pay you.”

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