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Effective Cash Management Saves Time, Boosts Profits
Posted 5/15/2003
By Paul Broughton
If you own a small business, many issues demand your time and attention. At the end of each day, do you look back with a sense of satisfaction at a job well done, or do you wonder if you could have made better use of your time? Effective cash management, one of the most critical aspects of running any small business, can save you time and may help improve your profits.
As the owner of a small business, ask yourself the following questions. Each "yes" answer represents an expenditure of time and money that can be avoided through an effective cash management system.
Do you call or visit your bank to transfer funds back and forth between your money market and business checking accounts? This task can be eliminated by opening a single cash management account that combines checking, brokerage and lending services. At the end of each business day, the available cash in your company's checking account will be automatically "swept" into your money market funds. In addition to saving time and effort, your working capital will be invested more quickly, which can help increase returns. What's more, you'll avoid overdraft charges that result when manual transfers are either miscalculated or delayed.
Do you call or visit your bank to access your commercial line of credit or to make loan payments? If you qualify for an integrated line of credit, this task too can be eliminated. In general, your line of credit will automatically be accessed whenever the cash in your money market account is depleted. This helps avoid overdraft charges and, because any excess cash in your account will automatically be used to reduce your credit balance, helps minimize your interest expenses.
Do you review all your company's business charge card expenses in an attempt to keep them to a minimum? By choosing a business charge card account that provides a separate number for each employee who is issued a card, tracking your company's purchases becomes much easier. Some cards even feature individual authorization limits that allow you to decide how much purchasing power each employee will receive. Other possible benefits include delayed debits, which allow funds used for purchases to remain invested longer, and rewards programs that offer free travel and complimentary business items.
At the end of each year, do you comb through your expense records looking for tax deductions? Some cash management accounts enable you to code your checks as they are written and will categorize the expenses in your monthly and annual account statements. This can help save your company the time and money that would otherwise have been lost on each overlooked deduction.
Do you try and calculate all activity since your last monthly statement when determining if you have sufficient funds to take advantage of an upcoming business opportunity? A cash management account with 24-hour Internet access can provide you with complete account information that is accessible at any time from your personal computer, which can help you take more timely advantage of future business opportunities.
Do you manually process customer payments and prepare deposit slips before hand-
delivering them to your bank? A lockbox service can perform these services for you and accelerate the collection of your receivables. After receiving your customers' payments in the mail, the financial institution providing your lockbox service will clear the checks, enter the deposits into your account and prepare a detailed statement. Using a lockbox service can cut days off the time needed to turn your receivables into cash.
Do you mail or deliver charge and debit card sales records to your bank? Electronic card processing services can eliminate this chore and take over your daily and monthly record-keeping tasks. Your accounts will be reconciled daily and the information transmitted to your financial institution through a point-of-sale terminal. Monthly summary statements are also generally provided. Moreover, card payments can be automatically credited to your account and swept into your money market funds to begin earning interest as soon as possible.
Do you prepare your own payroll? This tedious and time-consuming task can't be avoided, but it can be handled by outside professionals. Even small companies may save money by outsourcing their payroll processing. In many cases, a professional payroll processor will calculate your payroll each pay period; prepare employee earnings statements; provide direct deposit arrangements; determine and deposit federal, state and all other withholding taxes; and file quarterly and year-end tax returns for your business. All of these can save your company time and help avoid payroll mistakes and late or inaccurate tax filings.
An effective cash management system can save a tremendous amount of time for most small and medium-sized business owners. And, if you choose a system designed specifically to meet your company's needs, you may also be able to add to your bottom line.
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Editor's note: This article is one of several management articles that will be contributed to AutoInc. this year by Automotive Management Institute (AMI) instructors. To learn more about AMI, its courses and instructors, visit www.AMIonline.org.
For more information, please contact Paul G. Broughton, financial advisor, Morgan Stanley, at paul.broughton@morganstanley.com.
Editor's note: This article does not constitute tax or legal advice. Consult your tax or legal advisor before making investment decisions. This article is for general informational purposes and is not an offer or solicitation to sell or buy any securities or commodities. Any particular investment should be analyzed based on its terms and risks as they relate to your individual circumstances and objectives.
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- "Stay in contact with your current customers. It costs much more to get a new customer than to keep a current customer. The most cost-effective way to stay in touch is through direct mail. Make it personal to build a lasting relationship."
- George Zabrecky, NWZ WORX Multimedia, www.nwzworx.com
- "Convey a very positive attitude toward the economy and the industry to everyone you come in contact with, revisit the basics of business with an intent to improve every process, and market like you started in business yesterday!"
- Robert "Bob" O'Connor, R. L. O'Connor & Associates Inc., www.rloconnor.com
- I was speaking with an area service manager for General Motors Corp. recently. GM's service departments are emphasizing two areas of focus to try to weather the storm. First, they are aggressively contacting all of their previous customers with service reminders and special incentives. Second, they are telling all their service advisors to really focus on getting back to the basics ... doing all the fundamental things well.
I agree with his observations ... especially the 'back to the basics' part. When we are busy, we begin to take shortcuts when it comes to basic customer service and sales skills. We find this to especially be the case with regard to telephone procedure. We get lazy and start quoting prices on the phone instead of taking the time to ask questions and make appointments to properly diagnose the customer's problem. We all know that we will retain more leads, get more appointments, and make more and higher per-ticket sales if we get the car in for a diagnosis before discussing prices.
My last thought is since we are seeing fewer cars, we need to sell more work on the cars we see. I'm not saying to sell unnecessary repairs, but I am saying to go over the car more thoroughly to find additional needed work on preventive maintenance items. It's always good business to do this, but when we're busy, we tend to just do what the customer asked for and get on to the next car. Customers actually appreciate it when you point out other things that need attention. If handled properly, they don't look at it as the traditional upsell. You need to offer it as a courtesy check and then more of a suggested service. Remember that each time they need to bring their car to a repair shop, they are inconvenienced. Offer the courtesy check and additional services as a way to avoid the inconvenience and possible added expense associated with postponing the needed repairs or maintenance.
- Thom Tschetter, Profitboost LLC, www.profitboost.com
Here are three ways to grow your customer base:
- Increase the number of customers - by prospecting or advertising.
- Increase the average transaction amount per customer - by bundling services and creating packages.
- Increase the frequencies of repurchase (repeat business) - by giving
great value the first time!
- Patrick Donadio, MBA, www.PatrickDonadio.com
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Business owners need to follow that bumper sticker philosophy: "When the going gets tough, the tough get going." When times are more difficult, most people cut back, leaving the fairway wide open for the player with the aggressive stroke. There is no better time to really bury the competition than when they are meek and afraid. That is the time for the bold to make their move and own a marketplace.
The need to advertise and aggressively market a business does not diminish with success. On the contrary, the extra cash flow success provides opens new opportunities that we could not afford before. This philosophy is what gets a business on the path to exponential growth ... and that is when we make real money."
- Brian Marks, Rhino Linings USA director of marketing, www.rhinolinings.com
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