@096 CHAP 9

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            ³       MAXIMIZING YOUR CASH FLOW       ³
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@Q          "MONEY is not the root of all evil.  The
@Q           LACK of money is the root of all evil."
@Q             -- The Reverend Ike
@Q
@Q          (Or, as Oscar Wilde put it, "Work is the
@Q           curse of the drinking classes.")

Money is still the ultimate labor-saving device, and cash
flow is the lifeblood of any business organization.  Yet
all too many small business operators are so concerned with
other matters that they fail to pay proper attention to
managing their cash resources properly.

Good cash management can make a significant contribution to
the competitiveness and profitability of your business.
Poor cash management is one of the main causes of business
failures, particularly among smaller firms.  A cash short-
age due to poor planning can set off a chain of disastrous
consequences, even in a profitable business.

Cash flow management has two aspects--projecting future
cash flow and controlling and maximizing the cash availa-
ble from operations at all times.

(a) PROJECTING CASH FLOW.  Projecting your business's near-
term and long-term cash needs is a very crucial function.
The purpose of making accurate cash flow projections fre-
quently is to bring to your attention any point in the fu-
ture where you may incur a cash shortage or deficit, so
that you can take steps in advance to prevent that occur-
rence, such as raising new capital, borrowing money, cut-
ting prices to liquidate some inventory, cutting back on a
planned expansion, etc.  You may want to consult your ac-
countant for assistance in setting up worksheets or com-
puter spreadsheets to do regular projections.  Your CPA may
also have (or be able to recommend) computer programs for
doing cash flow projections.

(b) MAXIMIZING YOUR BUSINESS'S CASH FLOW.  The following
are a number of effective methods of maximizing cash flows
for your business:

   .  Bill your customers promptly.  The later they receive
      a bill, the later you will collect for a particular
      sale, in general;

   .  If you know that certain large customers must receive
      bills by certain days of the month in order for you
      to get paid that month, try to bill them before those
      deadlines if possible;

   .  Deposit your cash receipts in the bank daily, if
      possible;

   .  Keep close tabs on credit customers.  Send them past
      due notices as soon as payments become overdue;

   .  If you can do so without hurting business, add late
      charges to overdue accounts;

   .  Never pay bills until just before they become due,
      unless there is a worthwhile discount for quick
      payment;

   .  Try to keep inventories as lean as possible.  Even
      if you occasionally lose a small sale because you
      are temporarily out of an item, you should be far
      ahead of the game by substantially reducing the
      amount of cash you have tied up in inventory;

   .  Look for items in your inventory that are moving
      slowly or not at all.  Consider slashing the price
      on those articles to convert them to cash and also
      to reduce the cost of storing them or taking up val-
      uable shelf space;

   .  Consider leasing equipment items instead of buying;

   .  Be sure that you are not paying more on your esti-
      mated income taxes than you have to.  You may qual-
      ify under certain exceptions that will allow you to
      delay paying much of your tax for the year until the
      tax return is due, without incurring interest or late
      payment penalties.  If you realize that you have al-
      ready overpaid corporate estimated income tax for
      the year, there is a procedure for obtaining a re-
      fund, by filing IRS Form 4466, prior to the time when
      you can file a return;

   .  If your business has "net operating loss" for income
      tax purposes that can be carried back to prior years
      or a carryback of tax credits, a procedure exists
      for filing a claim for a quick refund of the prior
      years' taxes.  Individuals file a Form 1045 while a
      "quickie" corporate carryback claim is filed on Form
      1139.  File either as early as you can, since the
      IRS does not pay interest on these refunds;

   .  Instead of keeping all your business cash in a local
      bank account, consider putting a significant portion
      of your cash in an out-of-town money market-type ac-
      count that pays interest and allows you to write
      checks against the account.  Since you will continue
      to earn interest on funds on deposit until the checks
      clear, consider using a fund in a distant part of the
      country, since (notwithstanding the electronic revo-
      lution) it will usually take longer for your checks
      to clear when you make payments to local firms if
      your money market fund is located 3000 miles away.

@CODE: LS
   .  In @STATE, the best way to maximize your
      cash flow is to join the Party.

@CODE:OF