Four Tips for Maintaining Working Capital

money_in_handIs your business ready for its next big opportunity? If you answered “yes” based on your experience, know-how, or sheer enthusiasm, don’t forget the one thing that can trump them all: cash. Often, the cash to hire additional staff, buy equipment and inventory, and cover other necessary expenses can make all the difference between a great opportunity and a missed opportunity.

So that you can be ready for the next big break that comes your way, help create sufficient working capital with these tips for taking control of your business’s cash flow.

Know where you stand. When it comes to cash flow, knowledge is power. Cash flow crunches don’t appear out of nowhere and they can often be spotted—and avoided—by knowing exactly where you stand with a cash flow statement. Income statements show sales, expenses, and profits at a given moment, but cash flow statements show the movement of money in and out of your business over a specific period of time. This will help you see whether you’re building or draining working capital.

Actively manage outflows. You’re in control of accounts payable, so don’t let spending run on autopilot. When cash is tight, delay payments as much as possible, but without paying late. Using charge cards to cover purchases is one option, but you can also consider bartering for goods or services, or using points and miles from credit card rewards programs. At times when you have sufficient cash on hand, take advantage of vendors’ payment terms that reward you for early payment with a 1 to 2% discount. Small discounts such as these can add up, and that’s money you can reinvest in your business. If early-payment discounts aren’t available to you, another possibility is to rely on credit or charge cards that offer them, such as the Plum Card from American Express OPEN.

Streamline monthly expenses. Short of charging higher prices more often, the most obvious way to balance receivables with payables is to simply cut down on expenses. Target recurring costs, because even a small reduction can add up to significant savings over the course of a year. Find creative ways, for example, to handle peaks in demand without hiring additional staff, by relying on outsourcing or temporary help. Also consider reassessing monthly services, such as the company’s cell phone plan or its Web hosting and IT services, to cut back on unneeded services and costs.

Create a plan B. Even the most diligent cash managers need to find cash for unplanned expenses or for important investments, such as buying hot new inventory or simply upgrading servers or other vital equipment. In these cases, it’s important to have several sources of financing lined up for when you need it. Planning financing ahead of time will allow you to find the best options, and you’re also more likely to receive financing before you’re cash-strapped. When conducting research, don’t overlook special lending programs you may qualify for, such as those designated for small businesses owned by women or minorities.

Customers’ tastes and demands can change in the blink of an eye, creating new opportunities in the online retail world for those who are prepared to act. By building solid cash flow practices today, you can be ready tomorrow when the next great opportunity comes your way.

About the Author

Federico Acuna, Vice President, American Express OPEN, oversees the Plum Card, a charge card that helps small business owners better manage cash flow and free up working capital by taking advantage of the card’s built-in trader terms.


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