In any business, “Cash is King.” This means that no matter how profitable the business is on paper, if you don’t have a proper cash flow, or adequate cash reserves, you are out of business.
Cash flow is exactly what it sounds like, the amount of money that flows through your business. In most small businesses the cash flow is more like white water rapids as it goes out and a mild trickle as it comes in.
The trick in managing cash flow is to speed up receipts, or money coming in, while slowing down payments going out. If you can work with your suppliers to get terms of 30, 60, 90 days or longer, you can, in effect, use that supplier’s money to finance part of your operations. However, sooner or later you have to pay the fiddler if you want to dance. The money has to be repaid and generally there is an added cost for holding on to the money longer. Sometimes you will give up a discount if you pay past a certain point in time. Other times you will have to pay a finance charge on the money.
Either way you must decide if the cost of the money is something you can afford. In many cases you can’t afford to pay it but you can’t afford not to pay it at the same time.
The biggest thing here is to manage your cash flow and pay your bills whenever makes the most economic sense in your situation.
Remember, paying late can and will affect your business credit rating and, depending on your circumstance, may also affect your personal credit rating.
The opinions or advice listed in this blog or website should be used as a place to start only. It is not a substitute for the use of a professional.
Please be sure to consult your attorney and/or accountant with any specific questions.
There is no one right answer to any business question that will cover all circumstances. Please Visit McClendon Enterprises