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Smart Cash Management Gives You Optimal Choices

From RBC Bank

RALEIGH, N.C. – June 2, 2010 – Whether you’ve been in business for one year or 10, you know that having enough cash to fund current operations and to invest in the future can be challenging. But, optimizing cash flow is absolutely doable. Here are a few tips and reminders about ways to make that goal a reality. But first, a review of what cash is – and isn’t.

It is:

  • money in the bank or in the business
  • how you pay suppliers, rent and employees

It is not:

  • inventory
  • accounts receivable
  • property

      There are three basic steps that most successful businesses take to make sure that they are attuned to the cash status of their business:

      STEP 1: Assess your financials (balance sheet/statement of cash flow/income statement), to understand your current financial situation.

      The balance sheet, statement of cash flows and income statements form the fundamental picture of your business’ financial health.

      Getting a handle on accounts receivable, inventory status and current debt is the first part of the assessment process and provides the essential balance sheet information.

      Having a statement of cash flows is important because it reflects how you get cash and where you spend it (financing, investing and operations.) This document tells you how much you are borrowing and how much you are paying investors, for example. Sometimes negative cash flows are good (for example, using proceeds from a big sale to pay off long-term debt). And sometimes positive cash flows are not good (a company losing sales might borrow money via a structured loan; while the resulting cash flow is positive, this move creates challenges for paying future obligations.)

      Last, in assessing financials, it is important to understand that income statements can sometimes be misleading because they do not reflect actual cash on hand. On income statements, revenue is booked when you make a sale, not when you receive payment; expenses are booked when you incur them, not when you pay the bill.

      STEP 2: Operate effectively to improve your cash position.

      Once you have a sense of the financial picture, one way to improve it is by reducing the amount of cash going out the door. Keeping daily expenses in check, keeping inventory as low as possible and speeding up collections are three very important ways to improve operating effectiveness. While these sound like common sense recommendations (and they are), something as basic as quickening the pace of receiving payments can have a positive effect on your financial statements and your cash position. Two tools to consider in achieving this goal:

      • accepting credit card-based payments might speed collections because of the convenience to customers, and
      • using a lockbox service can streamline and consolidate a large volume of payments generated from multiple locations.

      STEP 3: Manage growth for profitable and timely return on investment.

      Unsteady growth can cause big fluctuations in cash flow. But sound, steady growth – whether by adding staff, adding space or adding a new subsidiary likely will fuel future attractive growth opportunities.

      When considering a growth opportunity, look first at your strategy and your cash. Then align the investment with the type of growth that fits it best. For example, hire permanent staff to fill long-term needs, but engage short-term, contract staff to fill short-term needs.

      Looking Ahead

      Once a business has a handle on these day-to-day basics of cash management, it’s time to look ahead and anticipate when, where and how your cash needs likely will occur in the future.

      With growth often comes a need for cash management tools available from banks to help you simplify the increasingly complex tasks of assessment, operational effectiveness and growth strategies for your business. Examples of these tools include: lines of credit, overdraft protection, lock-box services, electronic bill payment and presentation, sweep accounts, merchant services, payroll services, tax-payment services, SBA loans and online banking.

      No matter where you are in your business cycle, it is important to have a good understanding of your present cash status and the tools available to help you achieve success in the future.

      This article is provided by RBC Bank. The information included in this article is not intended to be used as the primary basis for making financial decisions. RBC Bank does not provide tax or legal advice. Please consult your own financial, tax or legal advisor.

      About RBC Bank
      RBC Bank, headquartered in Raleigh, N.C., offers a wide range of financial services and advice to individuals, businesses and public institutions throughout the Southeast. RBC Bank’s network includes more than 420 full-service banking centers in six states (Alabama, Florida, Georgia, North Carolina, South Carolina and Virginia), an extensive ATM network and telephone and online banking. RBC Bank is the 38th largest U.S. bank by consolidated assets, according to SNL Financial’s List of the Nation’s 50 Largest Banks, September 2, 2009. RBC Bank is a wholly-owned subsidiary of Royal Bank of Canada (RBC) (RY on the TSX and NYSE), Canada's largest and most stable bank as measured by assets and market capitalization. In August 2009, Global Finance Magazine ranked RBC as the safest bank in the Western Hemisphere. RBC is also one of the world's financial, social and environmental corporate leaders, having appeared on the Dow Jones Sustainability World Index every year since its creation in 1999. Additional information about RBC Bank may be found at

      For more information:
      Dorsey Landis
      RBC Bank/(919) 788-6272