Managing Cash Flow – Part 2 – Controlling Expenses

by Peter Forint, BA, MBA

“Cash flow is king!” is one mantra that successful businesses follow in good times and bad.  In Part 1, I shared tips on how to get paid as quickly as possible.  In this article I will discuss ways to hold on to your cash.  Essentially it comes down to examining every area of your business and ensuring you are getting value for what you spend.

Accounts Payable:  Take full advantage of the terms offered by your suppliers and pay them on the day their invoices are due.  On the other hand, if your suppliers offer discounts for paying early, such as “2% 10 Net 30”, it may make more sense to pay early and add the savings to your bottom line.

Negotiate with Suppliers:  Consider consolidating your purchases to the supplier that offers the best loyalty discounts for your business.  Request a discount based on your anticipated total volume of business for the upcoming year.

Inventory:  Maintain appropriate inventory for your level of business.  If you are overstocked, investigate returning materials and supplies, or hold a sale.  Depending upon your cost of borrowing, it may be better to sell them at a discount rather than finance their storage.

Other Assets:  It may be a better business decision to rent or lease rather than buy equipment.  If you already own your equipment, you may be able to structure a sale and leaseback with your financial institution.

Work Sharing vs. Traditional Layoffs:  Unfortunately, layoffs are sometimes necessary.  One of the best kept secrets of Canada’s Employment Insurance program is “Work Sharing”.  Essentially, instead of laying off 20% of your employees you can lay off eligible employees for one day per week and they collect E.I. for that one day.  This saves you the expense of severance packages, the need to rehire and retrain when business picks up, and the morale of your employees.  See http://www.servicecanada.gc.ca/eng/work_sharing for details.

Lease Audit:  Commercial leases can be quite complicated and often tenants over pay some of the components, unknowingly to them and the landlord.  This is especially true when leases are renewed one year after another.  A lease audit is a detailed study by expert consultants.  They typically work on contingency, meaning if they do not find savings, you do not pay.  Given the current climate, they may even renegotiate a lease on your behalf, decreasing what you pay monthly in exchange for a longer lease.

Energy Audit and Incentives:  Energy is a very large expense for many businesses.  Fortunately there are a number of government incentive programs for energy audits and equipment retrofits including grants and loans that may require no up front investment on your part, but will lower your monthly energy costs.  Contact your local utilities to get started.

Benefits Study:  Do you simply renew your company benefits every year?  Ask your provider to conduct a study, including employee surveys, to ensure you are not paying for coverage your employees do not want or use. 

Mobile Phones:  Ask your current carrier to ensure you are on the plan that best matches your usage.  Next, ask the competitors to do the same.  It amazes me how aggressive the wireless carriers seem to be to steal customers away from their competitors, yet how little they do to keep you until you complain.  Competitors will often offer incentives that will make up for the penalties of breaking your current contract.  Now that we have “Wireless Number Portability”, you can change carriers and keep your telephone numbers, with minimal interruption to service. 

Talk to You Advisors:  Do your banker, accountant, and lawyer really understand your business?  Ask them for a complimentary one hour meeting, explain your operation, and ask what they can do to serve you better.

Ask Your Employees:  Build a value conscious culture with your employees.  Explain to them the importance of cash flow and expense control to the company and to their jobs.  You may be surprised at their great ideas.

A Final Warning - Always Pay the Government!  When cash is especially tight, some business owners are tempted to delay paying the government its source deductions, GST and PST.  There are steep penalties for missing these by even one day as well as interest to be paid.  Owners need to understand that as officers of the company they are personally liable to the government for these monies owed, even if the company is incorporated.

Peter Forint is Regional Vice-President with Wardell Professional Development, a business coaching and consulting organization serving owner-managed and family run businesses. Email: peter.forint@wardell.biz, GTA: 416-290-5718, Toll Free: 877-290-5718. Learn more at http://www.peterforint.com.

More Cash Flow Tips:  Managing Cash Flow Part 1 - Getting Paid

Next Article:  11 Tips for Getting Free Government R&D Money!