The labor market is tightening, and inflation continues to rise.
These macro trends may give business leaders pause. But there's not always a lot they can do about it.
“What I want people to think about is what they can control," says Louis Mosca, executive vice president and COO of American Management Services, Inc., which works with small and mid-market businesses to optimize their operations. “The things you can control, you should master."
That means your sales process, your incentive structures, and how you deal with bankers, customers, and suppliers.
With that in mind, these money management tips can help keep your business positioned for success no matter what the economy has in store.
1. Get a plan.
Whether you're just starting up or an established business, a business plan is essential. It's a roadmap that will keep you on the right track. Alan Padgett, president of Succentrix Business Advisors, recommends that all businesses have a three-year business plan that they update each year.
Just as important, says Mosca, is that it be communicated to employees so they understand the bigger picture.
“Anyone with any authority needs to be tied to the plan," he says.
2. Look ahead.
It's been said that accounting is like driving a car while looking through the rearview mirror. Financial statements often deal with the past and may not reveal a cash-flow problem until it's too late.
“There's nothing really there to help the small-business owners immediately: it's always 30, 60, or 90 days behind," says Padgett.
In an age when you can get real-time stock quotes and news updates, your financial data should be up-to-the-moment as well.
“What is really needed is real-time business management advice and proactive tax planning advice," he says.
For example, his firm, which has over 30 franchised offices, uses cloud-based software to facilitate the real-time flow of information.
So how can you stay on track? Mosca recommends putting together a cash-flow analysis that projects four weeks into the future and updating it weekly to identify problems while there is time to take steps to head them off.
3. Get a line of credit, but don't use it.
Lines of credit are lifelines, not a cash-flow strategy.
"The one thing everyone should be doing is establish the best lines of credit you can, not use them and pay off your debt as fast as you can," says Mosca.
One big no-no he sees frequently is businesses co-mingling lines of credit with their operating or checking account. If you cannot pay off your debt, he says, “you're not making money."
Mosca suggests meeting with your lending institution once a month or quarter so you can show them what's going on. That helps to establish a good line of credit and getting it renewed. But remember, he says, lines of credit are for emergencies, not daily use.
4. Collect on your accounts receivable.
A good accounts receivable practice is critical to help ensure a smooth flow of cash coming in the door. Mosca and his team are often called in to deal with cash-flow crises. When clients find themselves in a cash-flow crunch, his team tries to figure out quickly what they can do to become cash-flow neutral and rightsize.
"That doesn't mean firing," says Mosca. "We believe in productivity."
Instead, they'll look to sell off excess inventory, negotiate with vendors to stretch payment times, and collect on accounts receivable, even if it means giving a small discount to get cash in the door.
5. Prepare for the future.
Now that you have your basic processes under control, it's safe to poke your head up and pay attention to what's going on in the world. The country is preparing for a softening economy? You should, too, says Mosca. Trim costs and lock in long-term financing now before rates potentially rise further.
The Takeaway
With a little basic money management planning, you can stay firmly in the driver's seat. Good money management allows a business to ensure that its outgoings do not need exceed incomings so that there is enough money to pay for expenses including supplies, inventory, and wages. It’s also important so that money can be allocated for future investment back into the business.
Make it a habit to briefly review the finances weekly and more closely once per month to make sure the plan is being followed. You may also want to refer to the business plan which shapes the money management plan. Automation such as direct debits can also help to make sure bills are paid on time. Using the right software can help to make invoicing and bookkeeping easier as well, making it simpler to keep track of your income and expenses.
The information contained herein is for generalized informational and educational purposes only and does not constitute investment, financial, tax, legal or other professional advice on any subject matter. THIS IS NOT A SUBSTITUTE FOR PROFESSIONAL BUSINESS ADVICE. Therefore, seek such advice in connection with any specific situation, as necessary. The views and opinions of third parties expressed herein represent the opinion of the author, speaker or participant (as the case may be) and do not necessarily represent the views, opinions and/or judgments of American Express Company or any of its affiliates, subsidiaries or divisions. American Express makes no representation as to, and is not responsible for, the accuracy, timeliness, completeness or reliability of any such opinion, advice or statement made herein.
A version of this article was originally published on April 18, 2019.
Photo: Getty Images
