Catch Your Cash

This story appears in the
June 2004
issue of
Entrepreneur. Subscribe »

Think fast-name the three things most important to the success
of your business.

If cash management didn’t make your list, you’re not
alone. Most entrepreneurs think a lot more about sales and
marketing than the specifics of managing cash.

And really, who could blame them? The term “cash
management” is broadly enough defined so as to be perpetually
misunderstood. “People have a hard time describing it,”
says Joe Scharfenberger, head of small-business financial services
for Chase Regional Banking in New York City. “But cash
management is nothing more than cash in, cash accumulated and cash

Sounds simple enough. Yet many business owners watch their
would-be-profitable companies teeter on the brink because they
don’t have a handle on what’s coming in and what’s
going out of their corporate coffers. “Maybe, because these
things are basic, [business owners] assume they’re being done;
but there are always surprises,” says , CFO partner with professional services firm Tatum
Partners LLP in Chicago.

To help minimize surprises, assume no cash issue is too basic.
Here’s a checklist to help keep you on track:

1. Know where you are
and where you’re going.
All good cash management begins
with a thorough assessment of your business’s current cash
position and the development of a forecast based on that, says
Jonathan Gassman, a partner with accounting firm Gassman &
Golodny LLP in New York City. This should tell you whether
receivables are being collected quickly enough to pay vendors on
time and whether you’re optimizing your float.

2. Analyze accounts
receivable and payable.
If a cash position analysis turns up
more cash out than cash in, the best place to start is receivables.
Zorko looks at receivables first when he comes into a company to
help with financial troubles. Usually, he finds customers
aren’t paying for reasons the entrepreneur had no knowledge of.
Says Zorko, “It leads to a discussion about product quality,
service delivery or other things not being done properly.”

A glance at receivables may also remind you that you’ve been
shy about collecting, says Ira Davidson, director of the Small Business Development Center at Pace University
in New York City. Davidson counseled one business owner who showed
him nine months’ worth of uncollected receivables. “He was
afraid to collect because they might not pay and he’d lose
customers,” says Davidson. Collecting on time and sticking to
credit policies are critical to keeping the money flowing in.

Accounts payable analysis will tell you whether you’re
paying vendors too early to capitalize on float. Zorko recommends
asking, “Are we taking advantage of payment discounts? Are we
paying too soon?”

3. Use your
bank’s tools.
With an array of cash management tools
available, you never have to be in the dark again about your cash
situation. “The biggest mistake small-business owners make is
using only a checking account to manage cash,” says
Scharfenberger. He advises business owners to, at minimum, use an
interest-bearing money market account to park excess cash.

Gassman and Zorko both recommend limiting the number of accounts
at different banks. By consolidating accounts with one financial
institution, you can also negotiate more favorable loan terms.

4. Get thee a good
The first step on the way out of denial is admitting
that you’d much rather be out selling than crunching
numbers-and then making sure you have the right person to do that
for you. Most entrepreneurs have accountants, who tend to focus
solely on tax minimization, or bookkeepers, who may not have
adequate training to handle more sophisticated corporate finance.
Says Davidson, “If [business owners] don’t have a
financial VP, they really don’t know the implications of what
their cash on hand means to their business at large.”

is executive editor of CEO Magazine.

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