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Top 3 Tips for Solving Your Cash Flow Problems

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Cash flow is a cold-hearted (enter expletive here)! MGA’s F.A.S.T. team is tackling this issue for many of our clients.

When we visit clients that are in need of a cash forecast, we often get the same excuses when looking at their bad cash habits. Perhaps they haven’t considered talking to their accountant about their bad habits. Here’s what we typically hear:

 

MGA: “Why are you offering such long terms to clients?”

Owner: “It’s the industry standard.” 

 

MGA: “Why are you giving bonuses if you are not profitable?”

Owner: “We promised bonuses regardless of our performance.” 

 

MGA: “Why are you paying commissions if you haven’t collected A/R from your clients?”

Owner: “We always pay commissions when the sale is billed, not when it’s collected.” 

 

MGA: “Why are you giving out cash advances to employees if you have no cash?”

Owner: “We have always done that. It would be wrong not to.” 

 

By the end of the probing session, the client is usually left feeling irritated and criticized. To which we then tell the client, “cash flow is a cold-hearted (enter expletive here) who does not care about anyone but herself.” Most clients are initially shocked at this statement, but after some reflection, they realize that it is true. There should not be any emotion attached to cash flow decisions, and businesses should stop injecting such deep feelings into what is a black-and-white issue. When cash flow is right, you can “loosen the reins” a bit, but until then businesses should be following strict policies regarding their cash flow.

The right consulting partner will tell you the truth even when it’s hard to hear. The only way to improve your cash flow is to follow firm guidelines such as billing your clients on time with appropriate terms, making regular collection calls, paying vendors slightly later if possible, and updating policies and procedures that drain cash.

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3 Things to Consider to Solve Your Cash Flow Problems

  1. Can you use a credit card to pay your vendors? A check only allows you a few days of your cash. A credit card payment typically gives you an entire month before it is due. What would that do for you and your cash flow to ease some of the challenges you are facing every day?
  2. Are you enforcing your payment disciplines? For example, take a good look at what is really happening, not what your bookkeeper is telling you.
    1. How long are your receivables out there, or are you getting paid on time?
    2. What is the collection process, and how is it working?
    3. Do you find yourself in disputes far too often to make you happy?
    4. Are you excusing large customers who may be nice but not profitable? Just because they generate a lot on the top line, are they really helping the bottom line — and the cash flow? 
  1. Is everyone on board with the urgency and importance of cash flow priorities, or is it everyone’s afterthought? 

Could the MGA Finance Accounting Support Team help? 

MGA’s F.A.S.T. (Finance Accounting Support Team) service can assist by creating cash forecasts and researching your current cash situation. We can then help you apply the best strategy for you. You may do your billing on time, but collections are bad. Your billing may be incorrect, but collections are excellent. Whatever you are struggling with, we can help you take a step back to see it all from a much better perspective.

We are here to be your go-to resource for accounting support in Houston. We are here to help. 

Many issues affect cash flow, and MGA will dig until we find your primary problem areas. We will then put procedures in place to reduce or eliminate the problems that are affecting your cash.

Reach out to us today — we are ready to help!

March 12, 2018