Cash flow strategies

Hear about effective cash flow management strategies from Jerry Mills, Founder of B2B CFO.


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Published: July 18, 2008


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Hi. I’m Hattie Bryant and thanks for tuning in to the Wells Fargo Business Insight Series, where you’ll gain valuable tips that you can put into practice right away. Our topic is strategies for managing cash flow. We’ve all heard the phrase, “cash is king,” and that it’s the lifeblood of any business. Without adequate cash, a company will surely struggle. Indeed, not having enough cash is a primary driver behind business failures.

Joining me today is cash flow specialist Jerry Mills, founder and CEO of B2B CFO, a financial advisory firm that serves small and mid-size companies. He’s here to share with us strategies for increasing cash flow that can ultimately help boost profitability and sales.

Jerry, in your books, “The Danger Zone” and “Avoiding the Danger Zone,” you say that a company can never have too much cash, but that’s often not a situation companies find themselves in. What can small business owners do to establish sound cash management practices?


There are several things they can do to establish good practices. First, we need to understand that as sales go up for most companies, cash goes down. Where does cash go? It’s tied up in accounts receivable, in inventory, fixed assets and other places other than the bank account. So when that happens, we typically need to borrow money from a bank in order to pay our bills. And so we need to also understand the difference between short-term and long-term cash management.

For example, if we have a short-term working capital line of credit, we never want to buy equipment with that because if we use up that line of credit, we may run out of cash and may not be able to make payroll or pay an important bill.


Often business owners will find themselves strapped for cash before taking any measures to address their cash flow issues. How can business owners be better prepared?


One way they can be better prepared is to make sure that the cash that is in the bank, the amount that they see on the piece of paper, is correct. They should reconcile it every month or make sure it’s reconciled and then have somebody else double check it to make sure that it’s correct. The next thing they should do is, to look into the future.

We want them to consider making cash flow projections for the next six months. And during that process, we want them to use a spreadsheet. They should take the cash that’s in the bank today. They should look into the future and see what cash is going to come into the company via payment from customers, loans from banks or other sources.

They should then look at the uses of cash: payroll, overhead, rent, distributions to owners. And they should be able to look every month to see the excess or deficits that they’re going to have in cash. If there’s going to be a deficit in cash, we should be proactive today to shore up that to make sure we don’t run out of cash.


Okay, so at the end of the day, what’s the benefit of having good cash flow management practices in place?


There are significant benefits to having cash flow management. One of the best benefits is that if a company’s going to grow, it typically needs money from a lender. When you have good management, you’re showing to a lender that you manage your company properly you have a better chance of speaking to the lender and hopefully getting a good line of credit.

When we obtain or ask for a line of credit, we should ask the banker what the rules are. There shouldn’t be any surprises. We should ask, “Well, what do I need to do to qualify?” And we should also have an idea of how much money that we need and what we’re going to do with that money before we ask for it.

And then, of course, we should always ask the advice of the banker for short- term and long-term needs. That sometimes gets a little bit complicated, but you know what? That’s what bankers are in business for. They can tell us, “Well, this money should be used for short-term and this money should be used for long- term.” It all goes back to being wise about how we use our cash every day.


So avoiding the danger zone and having sufficient cash flow takes proactive measures and discipline and recordkeeping. Jerry, we’ve learned about what businesses can do to manage cash flow.

We’ve also learned to take preventative measures to achieve long-term sustainability. Once you understand your overall cash flow picture, you can develop strategies to facilitate future business operations. So thanks, Jerry, for your insight.

And thank you for joining us on this segment of the Wells Fargo Business Insight Series. To learn more about how Wells Fargo Business Banking can help you, visit

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1) Start your projection by including cash you currently have in the bank.

2) List expected cash sources (accounts receivable, borrowings from lines of credit).

3) List expected cash disbursements (overhead, payroll, debt payments, etc.).

4) Use a spreadsheet tool to project anticipated cash flow.