“In the chaotic world of entrepreneurship, it is crucial to take the time to think about how to better manage yourself.” 

Good cash-flow management means understanding every inflow and outflow of cash. In principle, you must delay every outlay of cash as long as possible, while incenting everyone who owes you money to pay it as rapidly as possible. Also, its about being vigilant about limiting any surprises such as unanticipated payment lags and unplanned-cash outlays. So how do you be proactive in managing cash? Here are some basic disciplines that every entrepreneur must understand and practice to optimize their cash:

• Analyze Cash Every Week. Each week check your cash balances and how your expected inflows and outflows of cash compare to your projection in your cash flow projection.
• Check Accounts Receivable verses Accounts Payable. Your main inflow of cash is from customers for payments, called Accounts Receivable. Your main outflow is payments for services and vendors, called Accounts Payable. Your goal is to decrease the days it takes to collection your Accounts Receivable and to increase the days it takes to pay your Accounts Payable. Your accounting system will allow you to easily run these reports.
• Monitor your Customer Balances. It is easy to fall short in the management of your Accounts Receivable (money owed to you from customers). Always use a software system to track who owes you money so that you can follow up with customers and send invoices and statements.
• Factor or Sell Your Receivables. A last resort would be to factor or sell your accounts receivable to what is called a “factoring company” to maintain a predictable cash flow. These “factors” basically buy your accounts receivable, forward you a percentage (usually around 80 percent) and then have the right to the cash when it comes in. The balance, minus any fees, are then sent to you. The fees can be significant as high as 20 percent. Some companies include Fundbox amd Blue Vine. Be careful with factors as many can be quite aggressive with your customers when payments are late. Make sure you set up the process for collections with them before you engage them.
• Slow Down your Cash Disbursements. Prudent cash flow management dictates that you retain cash as long as possible. This doesn’t mean you become a deadbeat customer to your own vendors – you still have to pay on time, just not too early and not late. If your vendor offers any sort of early payment discount like a 2% 10, net 30 you will always want to take advantage of the cost savings. You can also try negotiating extended payment times with your vendors. The longer the cash stays in your bank account, the better.
• Time Large Expenses, Get in to the habit of setting aside small amounts to fund large expected expenditures such as business license renewals and quarterly estimated tax payments. It is best to put the money in a separate account that you don’t have regular or easy access to, that way you are not tempted to “raid’ it for splurge purchases.
• Bill Up Front. Ask customers for payment on delivery, and only accept Automated Clearing House or credit card payments to avoid uncertainty or delay in payments. You can also enforce or encourage pre-payment. While some customers may be deterred by upfront payment, discounts can win them over, and late-payment charges can reduce overdue accounts and help you predict cash flow needs.
• Send Invoices Far in Advance. Make sure you send your invoices far in advance. If you don’t give your customers enough notice, you’re practically asking for late payments. Also, track all outstanding invoices, and have a system in place for credit guidelines and follow-ups.
• Understand What Each Dollar Gets You. For example, you might spend thousands of dollars getting booths at trade shows or hosting industry events and assume a certain return, but this estimation is unscientific and often inaccurate.
• Practice Smart Inventory Management. Early-stage companies often overlook proper inventory management. While it’s important to ensure sufficient supply, startups tend to overstock or pick the cheapest transportation options, which can actually be more expensive once you take idle inventory costs into account. Another option to improve your inventory management while reducing your idle inventory is to speak to banks that offer inventory financing so you don’t have to tie up cash.

Managing cash is a full time job – but one well worth the effort.