The secret to cash management is being prepared to deal with anything - feast or famine. If EXTRA money comes in, you are prepared; you know exactly what to do with it. If the money you expected doesn’t come in, you are prepared; you know exactly where and how to cut back on your expenses.

The secret to being prepared to deal with anything is defining priorities. If you have not defined priorities, you are likely to commit funds where they should not be committed and you may find yourself without the funds to pay for the really important items because your money has been spent for relatively unimportant things.

Priorities should be defined for both income and expenses. Income includes not only earnings from your products or services, it includes other resources you have for bringing cash into your business. Expenses should not be prioritized until they are divided into categories according to how you control the expenses. For example, all of your FIXED COMMITMENTS (Rent, Phone, Insurance, Loan Payments, etc.) should be grouped together and then prioritized.

Once your priorities are defined, then think through what you should do if:

Your income increases substantially (Feast).

Your income decreases substantially (Famine).

If you think through what you should do (Feast or Famine) ahead of time (before it happens) then when it does happen, you will be much better prepared than if you try to decide what to do in the heat or excitement of a feast or famine.  

Even when you are not in a feast of famine, you will have a great advantage over those whose cash management amounts to no more than keeping track of the balance in their bank accounts.

You will make better decisions: You will see more clearly if you should expand or cut back, hire or fire, buy or lease, increase or decrease prices, etc. 

You will be in a position to better engineer your income and your spending so that you will pay less in taxes and get more for your money wherever you spend it.

You will know how and when you should take more cash out of the business for yourself.