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Cash hungry? Featured

8:25am EDT November 26, 2002
In today's sluggish economy, it's more of a challenge than ever to keep the cash flowing into your company. But if you're having a problem, accounting professionals say, you may be overlooking some simple ways to improve your cash flow.

Michaela McGinn, director of Deloitte & Touche's assurance and advisory group in Columbus, says the first thing to do is examine your debt arrangements.

"It's not rocket science, but many businesses aren't considering this issue," says McGinn.

She recommends refinancing debt to a lower rate or converting variable rate loans to a fixed rate.

"Right now you might be tempted to leave the debt in a variable rate term since the interest rate is so low," says McGinn. "But the interest rate will go up, so long term, you are better off changing to a fixed rate."

Another technique to improve cash management takes some planning.

"Plan out your cash flow and see the spikes in cash demand, and plan to have the cash ready for them," says John Vogelpohl, a partner with Rea & Associates.

Vogelpohl says some companies work to increase sales but don't plan for the resulting increased cash demand driven by inventory and salaries when that big contract is landed.

He cites the example of a construction firm.

"A company can incur $80,000 to $100,000 in costs of workers' salaries alone before a penny is paid by the client," he says. "You have to look at that when bringing in new business."

Vogelpohl says you can often negotiate earlier payments with the client when you discover a potential cash problem.

McGinn and Vogelpohl also urge companies to make sure accounts receivables are being managed.

"When you've already sold a product or service, in essence you are providing an interest-free loan to the customer until that customer pays," says McGinn. How to reach: Deloitte & Touche, (614) 229-4787, Rea & Associates, (614) 889-8725