Money in the bank Featured

8:00pm EDT July 21, 2002

Every business has its good months and its bad months, regardless of whether it is retail, service or industrial. Part of the secret to business success is managing the excess money from the good months to cover shortfalls in the bad months.

“Any business, no matter what industry, the first thing they should do is get a line of credit, even when things are good,” says Martin D’Amico, author of “How to Predict Year-End Cash.” “You never know when you are going to need it, and the easiest time to get it is when you are doing well, as opposed to when you are in trouble. Get a line of credit, even if you don’t have to use it.”

To properly manage money, a business owner needs to understand cash inflows and cash outflows. Inflows include cash collected from sales, collections on accounts receivable and any loans from banks. Outflows include paying expenses, purchasing property or equipment and making loan payments.

Accelerating your inflows will improve your overall cash flow, because the quicker you can collect, the quicker you can spend. The more money you have in hand, the better you are able to pay your bills on time or early to take advantage of early-pay discounts. At the same time, controlling or delaying outflows improves your overall situation. CCH, a business consulting firm, recommends paying your bills on time, but never paying them before they are due.

To better understand these factors, set up a six-month cash flow budget. This will give you an indication of your business’s ability to create the resources necessary for expansion and can help predict periods when cash outflows exceed cash inflows when combined with your cash reserves. You can then take steps to close or fill the gaps.

Here are quick methods to improve your cash flow, as recommended by the Mining Co. (


  • Take advantage of early payment or prepayment discounts if you have available cash.


  • Consider leasing equipment instead of buying.


  • Offer discounts for prepayment.


  • Use trade credits or deferred payment plans when feasible. Get the longest payment terms possible.


  • Keep inventory as low as possible, and only buy discounted large amounts when you are sure you can use the entire amount.


  • Get rid of slow-moving items and donate or write off unsellable items.


  • Don’t overpay estimated taxes, and wait as long as you can without incurring penalties.


  • File for refunds as soon as possible.


  • Be cheap when buying office equipment or machinery. Determine what you can afford and see what you can get for that amount. Look for used equipment and furnishings from auctions, liquidators and used office furniture stores.