Quick tips for small business cash flow management.

• Author: Branham, Michael
• Position: FINANCIAL SERVICES

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For a small business owner, wearing the CFO "hat" may not be that exciting, but it's often a necessity. While your core skillset and business focus might not include managing cash flow, it's a chore that somebody has to accept for your business to operate successfully.

We do extensive planning with clients on personal cash flow management, and many of the same tips can apply to small business owners throughout the growth trajectory of their venture. The strategies are simple--in some cases obvious--and yet we are often surprised at how effective the conversations can be.

Here are some quick tips on how to set up an effective small business cash flow management system:

* Choose the appropriate tools: Invest in a bona fide accounting system from the beginning. Developing your own Excel spreadsheet for budgeting and cash flow management may seem like the best (read: cheapest) option, but as your business grows you'll want the expanded capability that a commercial application provides. Reporting, invoicing, and planning are all aided by available software programs. Quickbooks is a recognizable name in this space, but there are other options as well. A quick Internet search and a little due diligence can yield alternatives.

* Develop consistent policies: This can be a critically important step in simplifying your cash flow approach. Defined policies ensure good management habits are formed and can save valuable time instead of analyzing each situation separately. Specifically, policies can be incredibly valuable when revenue isn't received regularly and evenly. For example, a real estate agent who is paid as transactions close should develop policies that immediately parse out the estimated amount for taxes, a retirement plan contribution, money that can be reinvested in the business, and the money needed for personal compensation. If you know how every dollar needs to be divided (because you've done the planning already), you can eliminate surprises and ensure all facets of your business are covered. Your policies can then be reviewed periodically and altered as your business changes or grows.

* Create the appropriate "buckets": Once you've done the planning, typically on an annual basis with quarterly reviews, it's often helpful to create "buckets' for each of the aspects of your cash flow plan. Have an account that receives money set aside for taxes and a separate account for dollars dedicated to marketing, insurance...