How to Keep Good Cash Flow

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How to Keep Good Cash Flow

Financial TargetAs you all know, a key part of a successful company is positive cash flow! Below are some helpful ways to keep cash flow high, especially during a busy time of year.

Control Costs – It’s a good idea to have your bookkeeper, accountant, or controller justify his or her job by insuring all of your company’s money has a high spend to earn ratio. A high ratio percentage means most of your purchasing and spending decisions are the right ones and are creating new revenue for your company.

Strategic Tax Planning – If you aren’t doing this yet – start. Be sure to use a good internal financial reporting system to generate monthly income statements which are fully accrued and adjusted. This will help to increase your view on profitability. Knowing your true profits year-to-date is the first step towards effective tax planning. When you can see this information, you can see the magnitude of the profit or loss, you can think about what needs to be done to get back to profit or stay on track. You may be able to carry back the loss to prior years and recoup a small cash refund, or you could possibly write off some major deductions to offset the profits that would otherwise create a tax liability.

Tighten Up On Your  Collections – The “pay when paid” clause in some contracts can be an obstacle that some of your clients give you, but that doesn’t mean it has to be an “all or nothing” situation. Relationship is key. Good relationships with good customers can create synergies that you can (and should) take advantage of. There are times where good customers that you can rely on can lay out money to your company, if necessary, to help keep your firm on track. There is of course a different way to handle customers which are not giving you new work. Don’t be afraid to lean on them a little more than your more active customers so you can support your cash needs. You’ve earned the money!  Payment terms are established for a reason and so are lien laws. However, before going to any extreme you can try to retain payouts on completed projects, get upfront or “start up” payments form some customers and re-read your existing contracts to make sure you aren’t missing any payment deadlines or reduction in retainage that you may be owed.

Use a Debt Management Plan – Having a bank line of credit is one of those things that is important to have, but even better if you don’t have to use. It’s easy to go to the bank to borrow money when you need the bonds, but that actually may not be the best time to borrow. If your company needs cash that badly, it’s always better to earn at that time than to borrow it – borrowing from a bank based on need ultimately impacts your  company and bonding negatively. The balance owned counts as a current liability which is factored into the surety’s working capital equation. Plus, when you need the money, the bank knows it and it’s harder to negotiate good terms, interest rate, etc.  Having a debt management plan will help your borrowing be more strategic in both utilization and with the payback of the loan.


It’s always best to sit down with a good, construction oriented CPA or Tax Consultant to help you stay on track to be a successful and profitable company. If you need help finding a good accounting professional, please give us a call, we can put you in touch with some candidates.




By | 2016-09-16T15:54:20+00:00 September 16th, 2016|Surety Blog|Comments Off on How to Keep Good Cash Flow

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