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How can a business increase its cash flow from operations?

Author:
Harold Averkamp, CPA, MBA

A business can increase its cash flow from operations (or operating activities) by looking closely at each of its current assets and current liabilities. For instance, a manufacturer should examine its inventories of materials, work-in-process, finished goods, and supplies to identify the inventory items which have not turned over in a long time. Those items may need to be scrapped so that a loss can be reported and cash will not flow for income taxes. It may also mean less cash flowing out for new materials. Reviewing the turnover of each and every item may allow the company to reduce the inventory quantities thereby freeing up cash that would have been sitting in inventory.

Accounts receivable needs to be monitored to be certain that every customer is adhering to the agreed upon credit terms and that the terms are consistent with your industry. You need to get those receivables turning to cash. Accounts payable should be reviewed to be sure that your company’s cash is not being paid to suppliers prior to the required payment dates.

In addition to the in-depth review of each of the current assets and current liabilities, companies need to review its staffing in light of current levels of business and the recent advances in software and technology. Perhaps the company can function just fine with a few less salaried employees.

Lastly, the selling prices of some of a company’s products, especially those that require lots of complex activities and result in many inefficiencies and headaches, may need to be increased.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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