Can you make better use of your business cash?

Lee Beall | January 28th, 2011

Can you make better use of the cash you have on hand for your business? Develop a strategy to get the highest rate of return: 1) calculate a 12 month rolling cash projection to forecast cash deficits and surpluses, and 2) update your daily or weekly cash position to determine the extra cash your business has available.

With that cash forecast tool in hand, review the options that enable you to earn interest, yet still have access to the funds when you need them. Options might include a Certificate of Deposit, Money Market Accounts and Sweeps Accounts.

Because interest rates are low, look for other ways to wring out more income :

  • Use surplus cash flow to maintain higher balances to reduce bank fees.  Your banker can provide you their internal account cost report to identify the bank’s cost to maintain your account and the minimum balance needed to eliminate or reduce fees.
  • Pay invoices early and take discounts.  If your suppliers don’t offer an early discount option, call them and ask.
  • Pay down your bank credit line more often to cut your interest costs. You can draw back on the line of credit more frequently when needed.
  • Pay cash for equipment purchases during the year using the credit line if needed and arrange to roll the purchases into an installment note at the end of the year if needed.  You might consider this a forced savings account to help with year end taxes or bonuses.
  • Make an early payment or an extra payment on an installment loan.

Cash in itself is a useless commodity – it may look good and make you feel secure. What you do with cash is what makes it valuable.  With some thought and a little legwork, you can help your  cash earn a higher return and improve the bottom line.

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