Seven Steps to Smart Money Management

Published: Mar 10, 2009

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Is your business running at peak fiscal fitness? Cash flow is the lifeblood of any thriving business. To manage your money more effectively and profitably, simply follow these steps.

Step 1. Maximize earnings on idle cash. Financial institutions now offer some good alternatives to the no- or low-interest accountsmany business owners were traditionally forced to use. One of the most popular is called a sweep account, which regularly transfersunused cash into higher yielding short-term investments and then back into your checking account.

Another alternative, money market-based operating accounts, lets you earn money market rates on your everyday operatingbalances. On average, they deliver a higher yield than sweep accounts.

Step 2. Watch out for fees. Once you have found a way to get the highest possible yield on your idle cash, you have to be vigilant toprevent that yield from being eroded by hidden, confusing, or unexpected fees. You know the routine: It starts with a "small fee" beingcharged for certain transactions or for dipping below a minimum account balance. Once those fees kick in, it's only a matter of timebefore they begin chipping away at your cash balances.

Step 3. Speed up accounts receivable. Maximize the effectiveness of a high-yield, low-fee banking arrangement by getting moremoney into the account faster, primarily by staying on top of large and key accounts. A fax or e-mail followed by a call is a veryeffective strategy because you have put all the necessary information in the customer's hands before asking the person to make goodon the outstanding payment.

Step 4. Manage accounts payable. Many businesses pay their bills in batches, no matter when those bills are actually due. Ratherthan pay the bills too long before their due dates, take full advantage of the entire grace period. That way, your business can keep itscash working and earning interest for as long as possible.

Step 5. Use the budget as a strategic tool. Review your budget with an accountant for guidance on how to categorize various revenueand expense categories to give you the most tax-advantaged position.

Step 6. Know thy cash position. To run your business effectively, you need to monitor your cash position and cash flow continually.That means having comprehensive, timely, and up-to-date information at your disposal at all times.

Step 7. Get the credit you deserve. Finally, having access to quick credit is also an important tool in managing cash flow. Today youcan find business credit card issuers who offer lines of credit up to $100,000 and charge reasonable interest rates, in the 9.9 percent range.If you have a strong personal credit history you can generally obtain a business credit card even if your business is young.

Jack Littman-Quinn is president and CEO of, an online financial service for small and midsize businesses.