Small business tip of the week: Accessing cash in tough times

July 12, 2010 at 2:12 a.m.
Updated July 13, 2010 at 2:13 a.m.

When times are tough, accessing cash can be the difference between sinking and surviving. Many businesses focus on access to cash either through increased sales or working capital loans, both of which become more difficult because of their reliance on your proven ability to collect receivables.

If you can't collect receivables timely, adding more receivables complicates cash flow even further. Seeking working capital from a lending source is hampered because of its ties to your collections for their repayment.

So what's the answer? Truth is: There is no simple answer. Cash is tied to sales, receivables, inventories and other assets. The opportunity lies in the ability to transform this short list into dollars in your cash drawer. When you can, sell. When you sell, collect. The sooner the better. Then, squeeze the rest out of assets.

Let's look at assets, particularly those assets not playing a vital role in sales. We refer to these as underutilized assets. Do they have cash value? Are they necessary in the current or near-future operation of your business? If the answers are yes and no respectively, then you may have an opportunity. In business, it's not good enough to own an asset. If it doesn't make you money in use, then it needs to make you money through transfer of ownership.

Inventories are more current assets that seemingly become long-term by remaining on the shelf, or occupying space in the back stock area. The magic of retail is picking the right inventory for your cash flow cycle. A cash flow cycle is the time it takes for the dollar you spend on an inventory item to transfer into a sale, and subsequently return to you in the form of collections.

Sounds simple, but this cycle can be complex, and the more items you carry the more complex the management of this cycle becomes. Inventories that have transitioned from current to long term by virtue of remaining in stock have a special cash value equal to whatever someone is willing to pay. This discounted value transitioned to the cash drawer is better than its aesthetic value as a shelf ornament.

For all the rest, evaluate inventory by cash flow cycle, and when replenishing your current inventory or ramping up for future growth, start by choosing the items with the shortest cash-flow cycle first.

For help in determining your cash-flow cycle or other issues impacting your business, contact the University of Houston-Victoria Small Business Development Center.

Joe Harper is director of the University of Houston-Victoria Small Business Development Center.



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