Cash Flow Part II: How to Take Charge of Your Bank

Cash Flow Part II: How to Take Charge of Your Bank


Last month, in the first post of the series on Cash Flow,  I shared some important lessons I learned about finance by playing the game Monopoly. This month, I want to conclude the two-part series by sharing how to take charge of your bank and four strategies I've found can help any business owner to do just that.

Ever hear of a greased pig chase? It’s a contest, commonly held at county and state fairs, where vegetable shortening is slathered over a pig, which is then released in a crowd of children who attempt to round it up and put it in a pig pen—with squeals from kids and pig alike. That is a little bit of what I think of when I think about us entrepreneurs taking charge of the company piggy bank—sometimes it feels like we’re trying to catch something that doesn’t want to be caught! While I don’t know about greased pig chase strategies, here are four ways to take charge of the bank.

First, find ways to speed up inflows. The faster money comes in, the better for you and the bank, and while we generally cannot control timing, we can certainly influence it. How can we accelerate cash coming in? Getting prepayments or deposits, offering early payment discounts, putting customers on retainers, or having sales are all different ways of influencing customers. If it looks like customers are going to be slow to pay, then get a working capital loan.

Second, slow down outflows, and start slowing down and spreading out payments if necessary. The key to pulling this off successfully is to focus on maintaining healthy vendor relationships. This means notifying vendors as soon as possible that payments will be made after due dates, and / or that installment payments need to be arranged. Reasonable vendors will respect and appreciate the heads up, and much prefer seeing partial payments as opposed to seeing payment in full far into the future. After all, the partial payment helps their cash flow, and it signals to them that you are remembering and respecting them and their needs. In turn, they will respect you and will continue to work with you during tough spots.

Third, and my favorite technique to improve cash flow, is to become more profitable! When I look to times where I have seen businesses pull out of cash flow crises, the most significant impact came because the bottom line improved. They found ways to get more customers, increase prices, offer new and exciting products, and reduce expenses, all which lead to improved, permanent net profit, which in turn builds the bank.

Finally, if these money management techniques aren’t enough, consider getting a short-term loan to cover temporary dips in cash. New lending options are available through non-bank lenders, including micro loans, non-profit lending agencies, loan marketplaces (where multiple lenders see loan requests and make loan proposals in return), and loans based on receivables or contracts.

When applied together—speeding inflows, slowing outflows, and increasing the bottom line—the cash management game changes quite a bit, especially for businesses that has been struggling with low bank account balances for a long time. Between the last column, where we talked about ways to predict bank balances, and this column on how to influence and control money, the fundamentals are in place for improving the bank balances and build a solid cushion for months and years to come.

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