Quick cash loan without a checking account

Is your firm short of cash? The reasons may not be obvious, but the remedies are clear

In boom years, the results of haphazard cash management are often masked by profits and go unnoticed. But in slow years, when margins are thin, managing cash poorly may spell failure for a firm.

"The biggest problem many business owners have now is that the '80s were very good," says Diane Weinhold, a partner in the Los Angeles accounting office of Singer, Lewak, Greenbaum & Goldstein. "Owners were able to let businesses run by themselves, and they became complacent."

As a result, Weinhold says, many managers and owners simply don't have a good grasp of where their businesses stand financially.

If you suddenly find that your business is short of cash, experts say, you should move quickly to find out why. The answer may not be as obvious as it first appears, however.

The first place to look for problems is your income statement. It reflects sales and costs, profit and loss. Unfortunately, many small businesses make the mistake of attempting to solve their cash-flow problems solely by boosting sales.

"Small businesses focus on building sales, which is perfectly appropriate. But it's not enough," says James Howard, chairman of the board of Asset Growth Partners, Inc., a New York City financial-consulting firm for small businesses.

And the income statement reveals only part of your financial picture, says Howard. "It doesn't tell you how much money is in the bank, the value of inventory, how much you have borrowed, how much you owe, or your net worth." That's the job of the balance sheet - a compilation of information that many small companies neglect to use properly.

Careful balance-sheet examination may reveal uncontrolled receivables and inventory - both of which are drains on cash flow.

Without adequate controls over receivables and inventory, "it is entirely possible for a business to make a profit and still go out of business," says Howard. "Just by managing receivables well in a small company, you can generate tremendous amounts of cash. In today's economy, maximizing cash is the name of the game."

Insufficient attention to receivables almost sank one of Howard's clients, a 5-year-old service firm with $20 million in annual billings. Unexpectedly, the company started to lose money and couldn't pay its bills.

The first thing Howard did was advise the firm to send its bills out faster, then follow up with phone calls when an account became overdue. He also advised the firm to establish and follow a strict collections policy, which included involving employees in collecting overdue payments.

At weekly staff meetings, every receivable was reviewed. Financial controls were improved, and management began getting the financial statement by the tenth of the month. These changes quickly produced a cash infusion of $1.5 million. Within six months, the company was back on track and was even able to reduce its bank credit line.

The kinds of cash-management problems the company faced are common among small businesses, Howard says, and the safeguards for preventing them can be adopted by virtually any firm.

To avoid future problems with receivables, Howard says, companies should establish a strict policy on how and when to extend credit.

In setting policy on credit for new accounts, require a completed application to determine credit worthiness, and set a strict credit limit. Check references carefully. For quick checking, keep at hand a list of each client company's employees who are authorized to charge for products or services, and keep the list up to date.

References and credit must be checked thoroughly, and sound legal documents are important in case formal collection measures become necessary

Another cash drain is excess inventory. Inventory can be managed more efficiently if it is tracked with computer software, says Howard. He recommends that inventory management be integrated with customer service and delivery programs.

"The cost of carrying inventory is expensive," Howard adds. "A typical manufacturing company pays 25 percent to 30 percent of the value of the inventory for the cost of the borrowed money, warehouse space, materials handling, staff, lift-truck expenses, and fixed costs. This shocks a lot of people. Once they realize it, they look at inventory differently. The reason many owners don't know about it is that this cost doesn't appear on any statement; it must be calculated."

There are a number of other ways to maximize cash flow. Many fall under the heading of improved expense control. Small-business managers should review expenses carefully and regularly. Consider whether each activity in which the company is involved is a benefit to the business. If trimming is necessary, weigh long-term as well as short-term effects of the expense cuts you would consider.

"Most owners are experts at their own merchandise but not with everyday business supplies or their costs," says Rick Neiswonger, a partner at Expense Reduction Analysis, a St. Louis firm that recommends ways for businesses to cut costs in key areas.

For example, Neiswonger's firm tells clients that when they are arranging for services or supplies, they should get more than just a couple of bids. They also should conduct periodic price and service comparisons of current services, even those supplied by long-term vendors, he says.

Neiswonger's firm, which receives a percentage of the amount it saves its clients on their expenses, focuses on costs in areas such as office and cleaning supplies, equipment, coffee and soft drinks, printing, and business insurance.

Following are recommendations drawn from Neiswonger's observations and those of other experts.

Compensation. Look at salaries and pay schedules. If personnel must be cut, carefully evaluate the company's volume of work and how it is accomplished. "Have everybody write out what they do daily, weekly, monthly, to locate duplication and gauge productivity," says Los Angeles accountant Weinhold.

In very small companies, this may include each employee. In larger companies, start by looking for duplicated efforts among managers.

Purchasing. Don't authorize five or six employees to order merchandise or use overnight mail services, Neiswonger says. Instead, try to have one person in charge.

Supplies. Avoid lumping costs such as soft drinks into petty cash. Break these out separately and review them monthly, Neiswonger suggests. Take into account costs of delivery. It may be much less expensive to pay an hourly worker to pick up drinks or other supplies.

Make employees aware of the costs of office supplies. For example, mark the individual cost of each item, such as pens, on the box. Hold the firm's managers responsible and accountable for expenses in their departments.

Travel and Advertising. Scrutinize expenses such as travel, entertainment, and advertising. Make sure your ads are reaching your intended market, and monitor the results of current advertising.

Insurance. Ask the companies that provide your workers' compensation and other coverage about ways to reduce accidents and premiums. Consider increasing deductibles for employee health insurance.

Records. Above all, maintain good records. "Ninety percent of the businesses that go out of business don't know why they did," says Weinhold. "They didn't have adequate bookkeeping and didn't know where they were."

A serious problem, she says, is the fudging of records to compensate for losses or mistakes, with the thought that the situation will soon be corrected. "Many business owners lie to themselves for so long," Weinhold says, "they don't know what those numbers really mean anymore."

Owners also mistakenly believe that the accounting firms that prepare statements will necessarily alert them to financial trouble. But the compilation of your financial records is solely for reporting purposes. Financial accounting yields only numbers, not analysis of financial problems. Unless the accounting firm is specifically retained to do so, it won't look for or point out problems.

Business Plan. To help you gauge progress and become alert to problems, develop a business plan for the coming 12 months.

"Begin with a sales projection - a realistic one based on the past 12 months," says Weinhold. "If '91 wasn't good, look back two or three years." Project expenses in the same way. With the help of a computer, put together a forecast for the year. Each month, review the monthly financial statement. Look for variances between the forecast and actual performance, and adjust accordingly.

Tracking. After developing a business plan, establish internal tracking controls. They will let you know quickly if you start to head in the wrong direction. Without them, it is impossible to know when and where to make adjustments.