4 Ste ps to I mp r ov e B u s i n e ss Ca sh Flow
JIM PARRISH
SBDC AT USF, TAMPA
In spite of the need for the business owner to
efficiently manage the assets and liabilities of
the business in order grow and improve the cash
flow of their firms, few business owners spend
the time to determine how efficiently they are
managing their assets and liabilities. Even fewer
take the time to amend their internal operating
procedures in order to increase the cash flow of
the business.
According to Jim Parrish, Growth Acceleration
Services Consultant with the Florida SBDC at
Pa rrish list s
four b usin ess
act ivit ie s
wh e re sm a ll
im prove m en t s
in e fficien cy
ca n le a d t o
substa n t ia l
growt h
in ca sh .
T h e y a re:
6 | FORUM FOR BUSINESS
Pricing
Even a small
increase in
price can lead
to a substantial
increase in
revenues and
cash flow.
University of South Florida, “The majority of
business owners are too focused on growing sales
with too little regard to the cash flow generated or
required by those sales.“
According to Parrish, "Now is the time of
year that companies should review pricing, how
efficiently they are collecting their accounts
receivable, how efficiently they are managing
their Inventory, and are they paying their
monitoring their accounts payable consistent
with industry norms."
Collection
of Accounts
Receivable
Focusing on
collecting the
money due to you
faster reduces the
cash needed to
grow the business
and/or puts more
cash into the
owner’s pocket.
Management
of Inventory
Moving the
inventory faster
allows a company
to have fewer
dollars invested
in inventory and
still generate sales.
T h e majo rity o f
busin ess o wn ers
a re to o fo cused
on gro win g sal es
w ith to o l ittl e
regard to th e cash
f l o w gen erated
or req uired by
t h o se sal es.
Paying of
Accounts
Payable
Some companies
actually pay their
bills faster than
the industry norm,
causing them to
borrow money
from a financial
institution and
thereby incurring
interest costs.
This makes them
less profitable.
Existing
Change
New
Addtional Cash
Generated
Sales
$400K
+5%
$420K
-------
cogs
$200K
-------
$200K
-------
gross profit
$200K
+10%
$220K
$20K
a/r collection
45 Days
-15 Days
30 Days
Industry Norm
$200K
a/p payment
20 Days
+10 Days
30 Days
Industry Norm
$67K
inventory turn
150 Days
-30 Days
120 Days
Industry Norm
$200K