To achieve a positive cash flow, you must have a sound plan. Your business can increase cash reserves in a number of ways:
• Collecting receivables: Actively manage accounts receivable and quickly collect overdue accounts. Revenues are lost when a firm's collection policies are not aggressive.
• Tightening credit requirements: As credit and terms become more stringent, more customers must pay cash for their purchases, thereby increasing the cash on hand and reducing the bad-debt expense. While tightening credit is helpful in the short run, it may not be advantageous in the long run. Looser credit allows more customers the opportunity to purchase your products or services.
• Manipulating price of products: Many small businesses fail to make a profit because they erroneously price their products or services. Before setting your prices, you must understand your product's market, distribution costs, and competition. Monitor all factors that affect pricing on a regular basis and adjust as necessary.
• Taking out short-term loans: Loans from various financial institutions are often necessary for covering short-term cash-flow problems. Revolving credit lines and equity loans are common types of credit used in this situation.
• Increasing your sales: Increased sales would appear to increase cash flow. However, if large portions of your sales are made on credit, when sales increase, your accounts receivable increase, not your cash. Meanwhile, inventory is depleted and must be replaced. Because receivables usually will not be collected until 30 days after sales, a substantial increase in sales can quickly deplete your firm's cash reserves.
Article Source: http://www.abcarticledirectory.com
About the Author:
John R Seagren, CPA
True North Accounting Solutions
"We keep you on track"
John is a CPA specializing in Tax Planning, Bookkeeping and Payroll for small businesses and investors.
Related Videos on Accounting
Did You Like/Dislike This Article? Give It YOUR Rating!
Please Rate this Article
5 out of 54 out of 53 out of 52 out of 51 out of 5
No Ratings Yet. Be The First To Rate This Article
Still Searching? Last Chance to find what you're looking for with a Google Custom Search!
Or.... You can search this site using our Bing Custom Search!
Powered by ABC Article Directory