Cash is king, as the old expression goes, and it's also what keeps you in business. A lot of small business owners focus on their profit and loss statements, but fail to spend enough time analyzing their cash flow.

If you have a lot of cash invested in inventory and much of your income is locked up in accounts receivable with slow paying customers, the resulting cash crunch could cripple your business. Even though your business may be profitable, the failure to manage your cash could threaten its survival. Just as oil is necessary to a car's engine, cash flow is the grease of your business.

Cash flow management is a process that involves planning. This process includes: forecasting cash needs, collecting accounts receivable, controlling the timing of disbursements, and the amounts invested in inventory. Therefore, cash flow planning requires monitoring nearly every aspect of your business. This practice also helps create a more predictable business, making it easier to plan and budget. This is an area where your bank should be able to provide some value added services.

As you build your banking relationships, ask about how the bank may be able to help improve your cash flow. Besides lines of credit, banks also offer small business owners services that were previously reserved only for larger businesses.

For example, businesses that have a lot of incoming checks can benefit from a lock box that can reduce check clearing time. Customers remit to a post office box that the bank empties daily.

Computerizing checks is another service that might be worth considering. Remote check deposit is a relatively new service that allows businesses to buy a desktop scanner that electronically inputs checks into the bank's computer system. This service eliminates the trip to the bank and also gets checks into the businessʼs account immediately and reduces the “float-time.” Itʼs also a measure of protecting the business from insufficient fund checks being accepted.

One of the most frequent missteps small business owners make is failing to manage customer payment terms. Can you really afford to be giving customers 60-day payment terms when your bills are due in 30 days? Collecting deposits upfront with orders is another strategy thatʼs easier to employ than most believe.

Remember, profit and cash flow are two completely different things. Small businesses owners need proper planning for both to remain successful.

James Docster is a financial advisor and district manager with Waddell & Reed in Jacksonville.
He can be reached at (904) 448-2743 or Jdocster@wradvisors.com.