5 Golden Rules to Make Cash Flow Work

American Express created the OPEN Book with tons of tips on how to grow a small business. Paging through the OPEN Book, one article jumped out: Go With the Flow. The brief article was written by Raymond Joabar, Senior VP and GM of Lending and Network Development, and he gives “5 golden rules in order to make cash flow work for you instead of against you.” We’ve summarized the rules below for the factoring blog‘s readers:

1. Know how to measure it. Joabar suggests monitoring your cash flow by reviewing balance sheets and cash flow statements, as well as the number of days it takes to turn inventory, and how long it takes for cash to cycle through the business.

2. Know the causes of cash flow problems. When businesses hit a growth spurt, that means more cash is needed to invest in additional inventory and infrastructure. On the other end, if your customers aren’t paying you quick enough, it can also lead to cash flow problems. Finally, slow sales lead to poor cash flow. Joabar says it’s important for busienss owners to understand the fundemental causes of cash flow to help avoid problems before they begin.

3. Build strategies that can maximize cash flow. Joabar strongly urges business owners to “get serious about minimizing fixed expenses” and “find creative ways to handle peaks in demand without hiring additional staff.” He says to think about using credit cards rewards programs and frequent flier point as cash substitutes when making purchases. In addition, it’s important for you to set clear payment terms and expectations with your clients.

4. Prepare for the Worst. Simply put, Joabar advises for business owners to get a “jump on the cash flow problem by lining up several sources of financing in advance.” Accounts receivable factoring is a great way to manage your cash flow during times of rapid growth.

5. Grow Smart. “Consistent growth is the best way to smooth out bumps in cash flow,” according to Joabar. “When opportunities for growth present themselves, plan carefully.” Every investment, including custoemrs, should have clear returns.

2 Replies to “5 Golden Rules to Make Cash Flow Work

  1. Just when I thought the financial bleeding had stopped, especially after the holidays, wouldn’t you know it; I have like a thousand birthdays coming up within the next two months – UGH! As I was complaining to my best friend over a cup of coffee, she told me about this site that she went to where she was “able to spend money she didn’t even know she had”. I know, I was scratching my head too. Actually what she was referring to was her frequent flyer miles. She found this site called milehighswap.com where people can swap their miles for things that they have up in the attic at home collecting dust. Aside from just “stuff”, you can also swap miles for services. Anyone need their taxes done? (hee hee) If you have more than one reward program that you belong to like me, I also found out that you can swap miles in one of your accounts with someone for miles in another. I guess the best way to describe it is that it’s like eBay, but instead of cash the currency is miles. I believe the site is in beta but it’s definitely worth checking out, especially if you have miles just sitting around waiting to expire.

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