Managing Your Cash Flow ~ Part 2


2. Pay on time, but no sooner.

When you are managing a growing company, you have to watch expenses carefully. Very often, for the sake of convenience, people get into the habit of paying a bunch of bills all at the same time. That means some bills are being paid well before they are due. Unless you get a discount for doing so, don’t pay early. While a lot of people believe in staying ahead of bills, that's just poor cash management. You want to keep your money in your hands as long as you can so that it is either offsetting your own borrowing or earning interest for the company.

If you can, use electronic funds transfer to make payments on the last day a bill is due so you remain current with suppliers while retaining use of your funds as long as possible.

If your business involves travel, use a business credit card for lodging, Since most credit cards come with a grace period, it’ll mean you don’t have to make a until 21 days after receiving the statement.

If you do run into a cash flow problem, communicate with your suppliers so they know your financial situation. If you need to delay a payment, you'll need their trust and understanding

3. Reconcile every month.
Many people neglect to reconcile their monthly business bank statements because they assume that banks never make mistakes. Well they do, and if you don’t reconcile monthly, you won’t catch their mistakes.

To reconcile:
1.  Take a piece of paper and divide it into two columns. Title the left side MY RECORDS. Title the right side BANK.
2. Under MY RECORDS, write the amount you have in your account according to your records as of the date of your last statement.
3. Under BANK, write the final balance that your bank statement shows.
4. Check off all of the items in your records against all of the items on your bank statement that match.
5. Under MY RECORDS list any items from your bank statement that you don’t have in your records. Bank fees and interest are the two most common ones, but there may also be overdraft interest and fees,. Or you may have forgotten to deduct that cheque you wrote for petty cash.
6.  Under BANK, list anything in your records that doesn’t appear on your statement. It is possible that a cheque you wrote has not yet cleared your account. There might be several cheques that have not cleared. Or there might be deposits that you’ve just put into the account that don’t yet show up on the statement.
7. Total the two columns. Remember: If it is a credit (i.e., a deposit), you add it to your balance. If it is a debit (i.e., a cheque you wrote or a debit or credit card transaction), you subtract it from your balance.
8.  If the two amounts are the same, you’ve reconciled, your account is balanced and your job is done. If there is a difference, you know something is wrong. You’ll have to dig a little deeper. You may have miscalculated (if the difference is divisible by 9, you may have reversed your numbers). Or there may be a mistake on the statement or in your records. Verify everything until you balance.
9.  Make any corrections/additions/deletions to your records to bring them up to date.





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