Of the various aspects of management duties for small business owners, cash flow management takes the top most priority because it affects day to day operations of every business. Sales management, personnel management, production management and such are also important, but it is cash flow management that takes the front seat of every small business vehicle. It is fairly easy to handle cash flow for businesses that have a steady state throughout the year, but cash flow management does become a daunting task for businesses that have cyclical periods of high revenues and low revenues through the course of every operating year.

For cyclical businesses, managing cash flow primarily comes down to fiscal discipline that includes careful oversight of purchasing practices, careful re-evaluation of debt instruments, re-visiting debt service levels and conversely asset portfolios and evaluation of accounts payable practices. For companies that are extremely asset rich and cash poor, it might very well be worthwhile to borrow against paid off assets and leave the cash obtained in an easily accessible instrument to smooth out cash outlay requirements during the lean months. If borrowing against paid off assets is not preferred, then a significant line of credit, preferably unsecured is a reasonable course of action to take. Accounts payable practices must be re-visited. Instead of paying all vendors in sixty or ninety days every time, pay them early in the good months with a clear understanding, in writing if possible, that in the forecasted lean months, your payment terms may exceed ninety days. Vendors are more likely to work with you on credit terms, when they are informed ahead of time of the lean months that you forecast. By the same token, paying them early in the good months develops a good standing with them. Suppliers are a key aspect of any business and ruining relationships with them is not a good idea.

It is important to sock up sufficient cash reserves in the strong months even if the return on investment is very low. In addition to maintaining cash reserves, it is a good idea to stock up on raw materials and consumables inventory during the strong months to take care of the materials and consumables requirements for the weaker months that may lie ahead. Any outstanding debt that is serviced at high rates must be revisited and refinanced at lower rates. This is true for any business, cyclical or not. Accounts receivables, conversely, must be carefully handled as well. Remember that when it comes to accounts receivables, suddenly you are the supplier and you need to work well with your customer, just as you expect to be treated well by your suppliers. However, you cannot afford to lend your customers ridiculously long payment terms, unless of course you are in the banking business and lending money is your way of living. As outlined, cash flow management for cyclical business can be quite a challenge and unless there is strict fiscal discipline right throughout the entire organization, there would be nothing but frustration and headaches in store.

Source: http://articlewonders.com

This article can be reprinted at your website provided all the publisher terms are adhered to.