Freeing up assets for a better business future

Sometimes in order to better manage finances, small business owners must free up assets, to improve their cash flow situation. This can be done in a variety of ways, and each small business owner, must determine the right steps to take if they undertake this method of cash management. If assets are handled correctly it can improve the financial standing of the business, failure to free up the correct assets, or doing it the wrong way can doom the business. Here is what you need to know about freeing up assets for a better business future.

• Consider fixed assets-During the initial stages a start-up business may not have sufficient funds, or financing available, for significant expenditures which can include fixed assets. This may even include machinery and equipment for a production process. Small business owners should consider the possibility that it may be possible to subcontract part of the process to another business that has the necessary machinery and equipment. There are other options to consider as well. For example: If certain equipment is needed occasionally, (but not on a regular basis), it may be more economical to rent the equipment when it is needed, rather than purchasing it.In addition, leasing vehicles rather than purchasing them may also be an option to consider.
• Consider inventory reduction-It is important to understand that the amount of inventory that needs to be kept on hand will depend on the characteristics of each particular business.It should be stressed that inventory should not be reduced to the point where sales are negatively affected, but there may be some strategies that can be used to reach a proper balance, to keep inventory levels down, while still satisfying customer demand. Small business owners can also increase the frequency of stocking, rather than holding a large quantity of inventory over longer periods of time.It is critical to plan ahead based on sales, and production forecasts, building in any necessary lead time. You can also make arrangements with suppliers, to hold inventory, or to produce and delivery, based on short turnaround times. It can also be helpful to reduce the number of products, or components.Using this method it may be possible to eliminate slow-moving items, or items with a low profit margin, without a significant detrimental effect on earnings. You can also wait to replenish inventory as sales orders are being shipped. Further steps to inventory reduction involve the ability to integrate and coordinate the purchasing, production, inventory, and sales functions. Finally consider liquidating deteriorated or obsolete items in inventory.
• Consider a reduction of accounts receivable balances-It should be stressed that for greater efficiency, the billing function should be streamlined and secure.There should also be sufficient internal controls to ensure that all sales orders. or jobs are billed as soon as possible, after the sale or completion of the work. Another step to consider is to reduce the periods between sales orders and deliveries, or between work requests and the start of work. It can also be helpful to reduce the period between deliveries and billing, and invoice immediately upon shipment, or completion of the work. The bottom line is that credit terms granted to customers may be an important part of a business's sales and marketing strategy, and in this case it is normal to carry a balance in accounts receivable.But this is an area that needs to be closely monitored and managed.
• Consider customer selection and credit management carefully-It is crucial to select customers carefully. You will need to evaluate prospective customers and their ability to pay, and most importantly get credit references. You should also review the means, conditions and terms of payment, and use direct deposit, electronic payment options, offer cash discounts for prompt payment or renegotiate payment terms.