In: Finance
Small Business Management- Can you please assist me with answering this question. Please do explanation in discussion is thorough. Kindly include citation in the discussion where necessary because answer will not be valid. Also please provide reference. Thank you so much. I will really appreciate this. Again thank you.
1. Discuss the “Big Three” of cash management including its basic principles. Value 10 points
“Big Three” of cash management
Big three for Cash management is 1. Account receivable 2. Account payable 3. Inventory.
Account Receivable
According to one small survey more than 90% small business sell their goods on credit that also without checking any customer background. But selling goods on credit is very important in this competitive business time. Cash sale is less expensive than credit sales as it involve more paperwork, staff and also time value of money.
Check point:
· Proper credit record: Merchant needs to proper record of the customer like name, address, contact number and other detail.
· Regular follow up: Once the credit sales happen, you need to do regular follow up with them. Allocate staff for the collection is also advisable. In follow up process, there is chance of cross sale as well. Once payment become overdue take a follow up more rigorously. Do not issue new credit until past due paid.
· Invoice: Generate clear and accurate invoice. Mention the terms of the payment in the invoice. Respond as soon as possible to the query of the customer regarding invoice. If you receive payment in cheque, Deposit as soon as possible.
Account Payable
Accounts payable is as important as account receivable. This is one thing where we can take advantage to manage our cash. We should stretch payable as much as we can but keeping mind that will not going to ruin our credit history with our supplier.
Check point:
· Terms of Payable: We should negotiate all terms with supplier. We can take best possible credit period without incurring any additional cash. Use the supplier with highest credit time with same product quality. Use cash discount when you have surplus cash for particular time.
· Invoice: Check amount and terms of the invoice before payment. Prioritize your creditor with their terms. Keep record of the time and date of the supplier who is more important to pay.
Inventory
In small business Inventory management is the most important part of the business. You cannot afford to stretch your inventory cycle and at a same time you need to fulfill requirement of your most of the customer. Those businesses are more profitable in which Inventory turn into Cash as most pace.
Check Point:
· Return/Exchange Policy: Negotiate the terms with supplier that you can return or exchange the goods once they sold. This is the best condition for business although to find such supplier is very difficult.
· Inventory Turnover: Profit of the any business highly depend on the how fast inventory turn into cash. Surplus inventory earn zero return and incur expenses like borrowed money cost and all other fixed cost.
Categorize Inventory: Keep close eyes on your all items. Categorize them as per their conversation to cash. Keep focus on low inventory turnover days, Increase that items. At a same time also check those items which increase your inventory cost. Try new idea or even discount on that product and try to clear as soon as possible.