Ask Score: Managing your business cash flow

Q: Ours is a cyclical business with regular ongoing monthly expenses. How can we ensure we have the funds necessary to meet our obligations when business is slow?

A: The quick answer is you must plan ahead. Most businesses are cyclical and if you have operated for several years you should know when to expect a slowdown in sales. It is imperative you have enough working capital on hand to pay your bills on time.

SCORE provides a 12-month cash flow statement in Excel format. It can be accessed at http://tinyurl.com/7mb74av. This is a form designed to project monthly income and expenses.

To begin, you start with all available cash on hand. This does not include money owed to you. You cannot spend accounts receivables. You then estimate your expected monthly income from sales, based on historic averages. Ideally you have three years of data to rely upon.

Expenses fall into two categories, known and unknown. Known expenses might include, rent, utilities, insurance, taxes, anything that is due on a regular monthly, quarterly or annual basis. Unknown expenses could include unexpected breakdown or replacement of an automobile, computer or other office equipment.

It is the unexpected expenses that trips up many small businesses. Prudence dictates you reserve 20 percent of sales revenue for the unknown.

Each month you should compare and replace your estimated income and expenses with the actual amounts received and expended. This will give you an end-of-month cash position. If cash is not coming in as fast as projected, determine if it is due to a lack of sales or collection of receivables has slowed.

One way to ensure you have the cash necessary to pay bills is to manage your accounts receivables. Whenever possible insist on payment at point of sale. If credit must be extended, try to secure a deposit with the understanding the balance must be paid in 30 days.

Another method is to negotiate manageable payment terms with your suppliers. Ideally, you would want these terms to dovetail with the periods that produce the most revenue.

The volunteer counselors with SCORE Naples can assist you with these and other management issues facing your small business. Counseling is provided FREE of charge to all U.S. citizens and legal aliens. To register call 430-0081 or visit our web site http://tinyurl.com/43aqelw.

SCORE Naples will offer a workshop dealing with time management from 9 a.m. to noon Saturday, March 3, at the Greater Naples Chamber of Commerce, 2390 U.S. 41. To register call 430-0081 or log on to http://naples.score.org/localworkshops

If you would like an answer to your question, fill out the form at http://naples.score.org/mentors. A counselor will contact you within 48 hours. Include your name, email address and a contact phone number.