Skip to main content

Cash Flow Management

Cash Flow Management

 

You’ve probably heard the saying that “cash is king,” and that truth applies whether you own a business or not. Most discussions of business and personal “financial planning” involve tomorrow’s goals, but those goals may not be realized without attention to cash flow, today.

 

Management of available cash flow is a key in any kind of financial strategy. Ignore it, and you may inadvertently sabotage your efforts to grow your company or even build personal wealth.

 

Cash flow statements (CFS) are important for any business. They can reveal so much to the owner(s) and/or CFO, because as they track inflows and outflows, they bring expenditures to light. They denote your sources and uses of cash, per month and per year. Income statements and P&L statements may provide inadequate clues about that, even though they help you forecast cash flow trends.

 

Cash flow statements can tell you what P&L statements won’t. Are you profitable, but cash poor? If your company is growing by leaps and bounds, that can happen. Are you personally taking too much cash out of the business? That may inadvertently transform your growth company into a lifestyle company. Are your receivables getting out of hand? Is inventory growth a concern? If you’ve arranged a loan, how much is your principal payment each month and to what degree is that eating up cash in your business? How much money are you spending on capital equipment?

 

A good CFS tracks your operating, investing, and financing activities. Hopefully, the sum of these activities results in a positive number at the bottom of the CFS. If not, the business may need to change.

 

In what ways can a small business improve cash flow management? There are some fairly simple ways to do it, and your CFS can typically identify the factors that may be sapping your cash flow. You may find that your suppliers or vendors are too costly; maybe you can negotiate (or even barter) with them. Like many companies, you may find your cash flow surges during some quarters or seasons of the year and wanes during others. Maybe you could take steps to improve it outside of the peak season or quarter.

 

What kind of recurring, predictable sales can your business generate? You might want to work on the art of continuity sales – turning your customers into something like subscribers to your services. Perhaps price points need adjusting. As for lingering receivables, swiftly preparing and delivering invoices tends to speed up cash collection. Another way to get clients to pay faster: offering a slight discount if they pay up, say, within a week (and/or a slight penalty to those who don’t). Before you go to work for a client or customer, think about asking for some cash up front (if you don’t do this already).

 

Relatively few small business owners look to home equity as a source of a business loan or a line of credit. Only 7%, in fact, according to the Federal Reserve. Meanwhile, only 6% explore a mortgage refinancing. But why are there so few? It could be that the repayment terms might be intimidating as well as the inherent risk of placing your home on the line. That said, it may be a suitable option for some seeking to start a small business.[i]

 

Be that as it may, there is a temptation for an owner of a new venture to get a high-limit business credit card. It might be better to shop for one with cash back possibilities or business rewards in mind. If your business somehow isn’t set up to receive credit card payments, think about how the potential for added cash flow could render the processing fees utterly trivial.1

 

How can a household better its cash flow? One quick way to do it is to lessen or reduce your fixed expenses, specifically loan and rent payments. Another step is to impose a ceiling on your variable expenses (ranging from food to entertainment), and you may also save some money in separating some or all those expenses from credit card use. Refinancing – if you can do it – and downsizing can certainly help. There are many free cash flow statement tools online where you can track family inflows and outflows. (Your outflows may include items like long-term service contracts and installment payment plans.) Selling things you don’t want could make you money in the short term; converting a hobby into an income source or business venture might help in the long term.

 

Better cash flow boosts your potential to reach your financial goals. A positive cash flow can contribute to investment, compounding, savings – all the good things that tend to happen when you pay yourself first.

 

To learn more about CapSouth Wealth Management and the services we provide, call our office at 800.929.1001 or visit our website at www.capsouthwm.com.

 

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

 

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] entrepreneur.com/article/336037

Protecting Against Identity Theft

 

The cost of data breaches increases. The latest annual study from Javelin Strategy & Research, a leading financial analytics research firm, says that 14.4 million people were impacted by I.D. theft in 2018. Roughly 3.3 million of them had to shoulder a financial loss or an out-of-pocket cost due to these crimes. Those losses and costs totaled $1.7 billion, more than double the amount from two years earlier.[i]

 

Retirees are often portrayed as the main victims of identity theft. By one measure, that is not true: Federal Trade Commission (FTC) statistics show that about three times as many consumers aged 30 to 49 have their identities stolen as consumers aged 60-89. The median financial loss from such crimes is higher for seniors, however.[ii]

 

The FTC says that credit card fraud increased annually over 2014-2018. While it is the most common kind of identity theft in every age group, it is not the only kind.2

 

Tax time is prime time for identity thieves. Thieves would love to get their hands on your 1040 form or state tax form, and they would also love to claim a phony refund using your personal information.

 

When e-filing your tax returns, make sure you use a secure Internet connection. When you e-file, you aren’t putting your Social Security number, address, and income information through the mail. You aren’t leaving a tax form on a kitchen table or desk while you go for a walk or get some coffee.

 

The IRS doesn’t use unsolicited emails to request information from taxpayers. If you get an email claiming to be from the IRS asking for your personal or financial information, report it to your email provider as spam.[iii]

 

Use secure Wi-Fi. Avoid “coffee housing” your personal information. In other words, never risk disclosing financial information over a public Wi-Fi network.

 

Sure, a public Wi-Fi network at an airport or coffee house is password protected – but if the password is posted on a wall or readily disclosed, how protected is it? A favorite hacker trick is to sit idly at a coffee house, library, or airport and set up a Wi-Fi hotspot with a name like the legitimate one. Inevitably, people will fall for the ruse, log on, and get hacked.

 

Look for the “https://” and the padlock icon when you visit a website. Not just “http://,” but “https://.” The “s” stands for “secure,” and the padlock icon in the address bar signifies that traffic to and from the site is private. For solid security when you browse, you could opt for a VPN (virtual private network) service, which encrypts your browsing traffic.[iv],[v]

 

Check your credit report. You are entitled to one free credit report per year from each of the big three agencies: Experian, TransUnion, and Equifax. Go to AnnualCreditReport.com (a website created by these three credit bureaus) as a first step to accessing yours.[vi]

 

Don’t talk to strangers. Broadly speaking, that is very good advice in this era of identity theft. If you get a call or email from someone you don’t recognize – it could tell you that you’ve won a prize; it could claim to be someone from the county clerk’s office, a pension fund, or a public utility – be skeptical. Financially, you could be doing yourself a great favor.

 

To learn more about CapSouth Wealth Management and the services we provide, call our office at 800.929.1001 or visit our website at www.capsouthwm.com.

 

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

 

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] https://www.iii.org/fact-statistic/facts-statistics-identity-theft-and-cybercrime

 

[ii] https://www.ftc.gov/system/files/documents/reports/consumer-sentinel-network-data-book-2018/consumer_sentinel_network_data_book_2018_0.pdf

 

[iii] https://www.irs.gov/newsroom/security-summit-warns-of-new-irs-impersonation-email-scam-reminds-taxpayers-the-irs-does-not-send-unsolicited-emails

 

[iv] https://www.uab.edu/it/home/about-uab-it/announcements/item/1035-lock-icon-in-url-isn-t-always-a-mark-of-safety

 

[v] https://www.forbes.com/sites/tjmccue/2019/07/11/best-vpn-services

 

[vi] https://www.transunion.com/annual-credit-report

 

What to Know About Flexible Spending Accounts at the End of Year

 

Flexible spending accounts (FSAs) are savings accounts reserved for out-of-pocket health care costs. They are offered through an employee benefit plan and allow you to use pretax dollars to pay for medical costs that insurance might not cover.

 

FSAs can save you money because they are funded with pretax dollars, but they are “use it or lose it,” meaning that if you don’t use the funds by the end of the year, they don’t roll over into the next. There is some flexibility, and employers may extend the deadline to use funds until March 15, but participants might want to aim for the end-of-year deadline to be safe. That means, by December, you should have a plan of how to maximize your FSA funds.

 

Not sure how to spend your remaining FSA dollars? FSA Store has thousands of items that are eligible, including first aid items, travel essentials, pain relief items, and much more.

 

To learn more about CapSouth Wealth Management and the services we provide, call our office at 800.929.1001 or visit our website at www.capsouthwm.com.

 

* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

 

Tip adapted from TurboTax[i]

[i] https://turbotax.intuit.com/tax-tips/health-care/flexible-spending-accounts-a-once-a-year-tax-break/L8hwzKu7r

 

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

 

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

 

Help us keep you informed!

Let us do the work and keep you updated! Sign up for the CapSouth financial updates.

You have Successfully Subscribed!