KEYWORDS: resources, analysis, cash flow, and monitor

Periodically review the following to determine if you need to implement a new practice or revise a current practice to keep your business on track.

Planning

* Keep an updated business plan.
* Do current and projected (1, 5, 10 year) planning.
* Plan for changes in personnel (additions, deletions).
* Keep current with new regulations/legislation that might affect your business.

Production

* Establish and continually assess your quality control.
* Establish a HACCP (Hazard Analysis Critical Control Point) program to ensure a safe product.
* Assess your input product and packaging needs to determine sources of higher quality and/or less expensive materials.
* Determine volumes necessary to buy direct from the manufacturer rather than from a distributor. This should mean a lower unit cost.

Marketing

* Keep an updated marketing plan.
* Join industry professional organizations to network and continually educate yourself.
* Identify key industry periodicals and read regularly.
* Keep updated on industry trends.
* Be aware of local, domestic, and international trade shows.
* Be aware of free or lower cost marketing possibilities (community events, contests, donations, cooperative advertising, sharing booth spaces at trade shows).

Finance

* Monitor your credit collections.
* Plan ahead for expenses and necessary loans.
* Strengthen relationships with lenders before you need the loan.

Community Interaction

* Network with other businesses in your community to identify ways that you can help each other (i.e. cooperative marketing, cooperative transportation).
* Is your business being affected positively or negatively by other businesses in your community? Is there any action you need to take in response to this?
* Can you make use of local suppliers to lower your costs and strengthen the community?
* Consider membership in the local Chamber of Commerce and local business organizations.

Monitoring Cash-Flow

To be competitive, business owners must prepare for all future events and market changes. The most important aspect of preparation is effective cash-flow planning and monitoring. Failure to develop and analyze cash flow statements is one of the leading causes for business failures.

Experience has shown that many business owners lack an understanding of basic financial analysis. Knowing the basics will help you better manage your business. There are books, workshops, courses and self-instruction guides from which you can obtain a more thorough understanding.

Cash-flow analysis should show whether your daily operations generate enough cash to meet your obligations, and how major outflows of cash to pay your obligations relate to major inflows of cash from sales. As a result, you can tell if inflows and outflows from your operation combine to result in a positive cash flow or in a net drain. Any significant changes over time will also appear. Understanding this will lead to better control of your cash flows and will allow adequate time to plan and prepare for the growth of your business.

It is best to have enough cash on hand each month to pay the cash obligations of the following month. A monthly cash-flow projection helps to identify and eliminate deficiencies or surpluses in cash and to compare actual figures to past months. When cash-flow deficiencies are found, business financial plans must be altered to provide more cash. When excess cash is revealed, it might indicate excessive borrowing or idle money that could be invested. The objective is to develop a plan that will provide a well-balanced cash flow.

Planning a Positive Cash Flow

To achieve a positive cash flow, you must have a sound plan. Your business can increase cash reserves in a number of ways:

* Collecting receivables: Actively manage accounts receivable and quickly collect overdue accounts. Revenues are lost when a firm's collection policies are not aggressive. The longer your customer's balance remains unpaid, the less likely it is that you will receive full payment.

* Tightening credit requirements: As credit and terms become more stringent, more customers must pay cash for their purchases, thereby increasing the cash on hand and reducing the bad-debt expense. While tightening credit is helpful in the short run, it may not be advantageous in the long run. Looser credit allows more customers the opportunity to purchase your products or services. Any consequent increase in sales should be measured against a possible increase in bad-debt expenses.

* Manipulating price of products: Many small businesses fail to make a profit because they erroneously price their products or services. Pricing is the critical element in achieving a profit and maintaining positive cash flow. Before setting your prices, you must understand your product's market, distribution costs and competition. Remember, the marketplace responds rapidly to technological advances and international competition. Monitor all factors that affect pricing on a regular basis and adjust as necessary.

* Taking out short-term loans: Loans from various financial institutions are often necessary for covering short-term cash flow problems. Revolving credit lines and equity loans are common types of credit used in this situation.

* Increasing your sales: Increased sales would appear to increase cash flow. However, if large portions of your sales are made on credit, when sales increase, your accounts receivable increase, not your cash. Meanwhile, inventory is depleted and must be replaced. Because receivables usually will not be collected until 30 days after sales, a substantial increase in sales can quickly deplete your firm's cash reserves. A computer will facilitate tracking this critical data, as well as speed the time required to consider "what if" scenarios.

Other Helpful Tips

Cash Reserve
You should always keep enough cash on hand to cover expenses and as an added cushion for security. However, it is unwise to keep more money on hand than is necessary. Excess cash should be invested in an accessible, interest-bearing, low-risk account, such as a savings account, short-term certificate of deposit or Treasury bill. Keeping excess cash on hand limits both your growth and the return on your investment.

Projections
Good accounting records and projections are important tools for a small business. Qualified accountants are necessary to help keep your records accurate and current. However, you can reduce your accounting expenses by producing your own summary statistics and projections.

Using a Personal Computer
With a personal computer, your business can have the added advantage of quick cash-flow projections as well as many other useful financial-planning tools. A good financial-management package and computer will enable you to review projected inflows and outflows of cash from month to month or year to year. By analyzing these projections, you can see the fluctuations in cash flow and create management policies to avoid potential shortfalls.

There are numerous computer programs for making projections and keeping records. Programs range from basic bookkeeping and "what if" analysis to inventory control or market-demand projections.

For More Information
Information is power. Make it your business to know what is available, where to get it and, most importantly, how to use it.

Sources of Information include:
* U.S. Small Business Administration (800) 8-ASK-SBA.
* SBA District Offices
* Small Business Development Centers (SBDCs)
* Service Corps of Retired Executives (SCORE)
* SBA OnLine (electronic bulletin board)
* Business Information Centers (BICs)
* State Economic Development Agencies
* Chambers of Commerce
* Local Colleges and Universities
* Libraries
* Manufacturers and Suppliers of Small Business Products and Services
* Small Business or Industry Trade Associations
* County Extension Offices

References

DeThomas, Art. Financial Management Techniques for Small Business. The Oasis Press. 1991.

Entrepreneur Magazine: The Small Business Authority. Subscriptions: PO Box 58808, Boulder, CO 80321. (800) 274-6229.

Hall, Robert E. The Streetcorner Strategy for Winning Local Markets. Bard Production Books. 1994.

Hanan, Mack and Peter Karp. Competing on Value. AMACOM. 1991.

Home Business Report: Working for People Working from Home. Subscriptions: (604) 857-1788.

Inc. Magazine: The Magazine for Growing Companies. Subscriptions: PO Box 54129, Boulder, CO 80322-4129. (800) 234-0999.

Lant, Dr. Jeffery. Cash Copy: How to Offer Your Products and Services So Your Prospects Will Buy Them Now.

Meyer, Dan. Account For Your Own Success. Management Communications Systems, Inc. 1993

Mondello, Candace. Credits and Collections: How to Improve Your Cash Flow. Crip Publications, Inc. 1991.

Smith, Jeanette. The New Publicity Kit: A Complete Guide for Entrepreneurs, Small Businesses and Nonprofit Organizations. John Wiley and Sons, Inc. 1995.

Thomas, Richard K. and Russell J. Kirchner. Desktop Marketing: Lessons from America's Best. American Demographics. 1991.

Internet Resources

Kathy Williams was formerly a Small Business & Textile Specialist, Colorado State University Cooperative Extension. Rosemary Biggins is a Business Development Specialist, Colorado Department of Agriculture.