1. Overview You might be one of many business owners confusing profit andcash flow when analyzing the financial health of your business. If you are, the likelyresult is that your company appears profitable on the books while you struggle tokeep the doors open, because you dont have enough cash on hand to take care ofyour daily operations. This guide will give you steps you can take to get a handle onyour cash flow management.NEXTEvery Business Should Know

2. 2 / 13Table of ContentsIntroductionImportance of cash flow managementGetting a handle on cash flow managementImprove your analyticsEnforce payment disciplinesMake it a company priorityModel of expected resultsMeet regularly to review progressForecast worksheetInsperity resourcesAbout Insperity34567899101213Every Business Should Know 3. 3 / 13IntroductionThough profit and loss statements are important to your business, a cash flow forecast thats tied to a workingbudget is critical to your business. Cash flow management, in simplest terms, focuses on ensuring that your cashinflow is greater than your cash outflow.When your cash flow slows or stops, it threatensthe life of your business.Some entrepreneurs new to the business world fall prey to poor cash flow management or neglect it altogether.Other issues could be impulse spending, early invoice payouts, (because the moneys in the bank,), failure tohave a replacement budget and plan in place for operational purchases all point out the importance of cash flowmanagement to a successful financial environment. 4. 4 / 13Importance of cash flow managementCash flow is a different concept from profit, which many business owners use as a gauge of business success.When you concentrate on your profit and loss statement, its difficult to focus on cash, which is the lifeblood ofyour business.If you buy widgets for $1 and sell them for $2,youve made a 100% profit on each widget. But ifyour widget buyer drags his feet on payment, andyou cant pay your own bills in the meantime, youhave negative cash flow.Cash flow management is a more realistic indicator of your companys financial health than mere profit.Its possible to show on paper that you have a positive net income from the sale of all those widgets, but havenegative cash flow because you havent received payment for those widgets.Businesses run on cash, and without cash, profits are just numbers on spreadsheets. 5. Cash flow problems are frequently the cause ofbusiness failure, so its imperative that you get ahandle on yours.5 / 13Getting a handle on cash flow managementYour business is profitable if your income exceeds your expenses, but only if you have enough income to coveryour expenses and remain operational when payments are due.So, lets go back to your widget buyer. If he lags behind in his payments to you, you dont have cash on hand to payyour bills when theyre due. Despite the projected profit you earned on the sale, you have a cash flow problem.Cash flow management is not a do it once and youre done; it is continuous activity of tracking, analyzing andadjusting to ensure your company has the cash it needs to remain profitable.Its imperative for financial business health that you control the inflow and the outflow of cash. Here are steps tohelp you generate and improve your cash flow. 6. 6 / 13Improving your cash flowImprove your analyticsMonitor your company cash flow on a regular basis (usually monthly).You need to forecast any material income source for your business. For example, you dont include refunds onsales as part of your projected cash inflow. All of your expected expenses, or cash outflows, should be included inyour forecast, including: Labor Rent Taxes Sales-related expenses Administration Payables to vendors Technologies or materials Inventory Marketing-related expensesPerform an analysis to see what days expected cash inflows and outflows will occur.In simplest terms, you dont want to run out of cash to operate your business. Business survival is about earningcash (inflow) and distributing cash (outflow) to enable you to pay your bills month in and month out.A thriving business grows cash while sustainingthe cash paid out and increasing the ability togain and support more customers.Create a quarterly budget for how much you expect to spend, for what reason and which month.Sadly, most businesses even some earning $10 million per year in revenue dont operate with a budget. Itsimperative that your management team creates a formal budgeting process, however. This is a guide that allowsyou to talk through planned expenditures related to your business strategies. 7. As you get a handle on your cash flow forecasting and management, consider a financial management systemthat provides you with tools to make sound business decisions.A good software system allows you to assess your companys fiscal health based on the total picture of your cashat hand, receivables, payables, working capital, expenses and other data points.The system should also provide you with charts detailing your financial, labor and sales data; reports that allowyou to drill down to the transaction level; and a cash flow forecasting tool to help you improve your cash position.7 / 13Enforce payment disciplinesConsider asking for a deposit or a partial payment on your product or service in advance. That way, if your buyerisnt a timely payer, your cash flow isnt depleted to the point of endangering your company.You also can take steps to shorten the period between invoices and accounts receivable: Offer a small discount if your buyer pays early. Write your contracts to include net 15 (or 30 or whatever timeframe best suits your business) or payment dueon receipt of invoice. Accept credit card payment. Though you will incur a fee, this may be a good bet to getting your money on time.The best way to ensure healthy receivables collection is to have a great relationship with your customers, andways to do this are: Deliver exceptional customer service. Clearly communicate your late payment terms. Call customers dont email when issues arise. Develop a relationship by taking your customers to lunch a few times a year.About half of allnew establishmentssurvive five years ormore and about one-thirdsurvive 10 yearsor more. Survivalrates have changedlittle over time.Small Business Administrationwww.sba.gov/sites/default/files/FAQSept_2012.pdfImproving your cash flow 8. The better the relationship you have with your customers, the easier it typically is to collect payment or makearrangements if their cash flow is tight.8 / 13Try to work your business out of any financial hardship by taking a hard look at your business. Can you do a better job of collecting outstanding revenue? Is it possible to increase sales? Can you pay less for equipment and supplies? Can you use your inventory more efficiently?As a last resort, you may want to consider securing a short-term loan. Debt is a slippery slope, however, so viewthis avenue as a last resort to increase your cash flow.Improving your cash flowMake cash flow management a company priorityMaking cash flow management your focus as company owner is vital for business survival, because cash is yourlifeline, your beating heart, so to speak.Share regular reports of summary financials with your management team. Reports you should look at include: Revenue Expenses Cash on hand Receivables Payables Net incomeTogether, you and your management team can analyze your companys financial position, track cash flowtrends and adjust your activities to make informed decisions about your company moving forward. 9. Make it clear that cash flow management is a priority for your company. Find out whats causing any cash flow clots.Ask questionsa How reliable are your sources of cash?a Are your customers delinquent in payment?a Which customers raise red flags, and what should you do about it?a Is it time to cut down on spending?a Do you need to cut down on your expenses or your operations?a Is it time to consider letting some employees go?a How has your balance sheet changed since your last meeting?a Do company operations generate available cash?a Where do you need to make adjustments?Create a model of expected results, and meet regularly to review progressIntelligent cash flow management requires a keen focus on accounts receivable, accounts payable, capital expendituresand debt payments it is not about your profit and loss statement. Cash flow is as essential to your solvency as yourforecasts for the future.The worksheet on the next page will help identify where you may need to increase inflow or decrease outflow of cash.9 / 13Improving your cash flow 10. 10 / 13Cash flow Forecast WorksheetIn the row marked revenue, record your actual revenue performance. In the row marked receivables, record your expected revenue. In the rowmarked expenses, record your actual expenses incurred. In the row marked payables, record your expected expenses. Subtract the total outflowsfrom the total inflows for each month to get your net cash position.InflowRevenueOutflowExpensesNet cash positionJan Feb March April May June July Aug Sept Oct Nov Dec 11. 11 / 13The bottom lineCash flow management doesnt take care of itself, and positive cash flow doesnt occur by chance.It takes work, and it takes regular analysis to make sure you have enough cash on hand to cover yourbusiness obligations.Improve your cash flow management with financial intellegence software designed to help youget a handle on current and future expected cash balances.Insperity RevealTo learn more about Insperity Reveal software,view our demo, or visit insperity.com. 12. Keeping up with the latest in business trends and best practices can be challenging. Insperity can help.From in-depth guides to interactive infographics, we provide a variety of complimentary online resources that arechock-full of useful and timely content for business leaders like you. Explore the latest news and proven advice ona wide array of business and HR topics, including business performance, benefits and compensation, leadershipand management, and legal compliance that help keep you in tune with new ideas and best practices.12 / 13Want more resources to guide you?GuidesBrowse our online library of comprehensive guides to gain insightfrom our seasoned business and HR professionals on issues givingyou the most trouble.BlogWith new posts going up each week, youll never miss a beatwhen youre up to speed on the latest HR industry topics. Whileyoure there, be sure to sign up for our monthly newsletter.ChecklistsChecking off boxes as you go can feel cathartic, but are youchecking from the right list? Our checklists will help you feelconfident youre following best practices.InfographicsVisual learners can rejoice weve got you covered, too. Ourinfographics allow you to visualize business trends and statisticsin understandable charts and graphics.Case studiesNeed some evidence that our HR strategies really work? Ourcase studies showcase them in action.Visit insperity.com/resources 13. Insperity, a trusted advisor to Americas best businesses for more than 28 years, provides an array of humanresources and business solutions designed to help improve business performance. Insperity businessperformance advisors offer the most comprehensive suite of products and services available in themarketplace. Insperity delivers administrative relief, better benefits, reduced liabilities and a systematic wayto improve productivity through its premier Workforce Optimization solution. Additional company offeringsinclude Human Capital Management, Payroll Services, Time and Attendance, Performance Management,Organizational Planning, Recruiting Services, Employment Screening, Financial Services, ExpenseManagement, Retirement Services and Insurance Services. Insperity business performance solutions supportmore than 100,000 businesses with over 2 million employees. With 2013 revenues of $2.3 billion, Insperityoperates in 57 offices throughout the United States. For more information, visit insperity.com.13 / 13About InsperityEmail this guideClick here to pass along a copy of this guide to others.Visit our blogSign up for our free newsletter.insperity.com/blog.To learn more, call 800-465-3800 or visit insperity.com