The first step in deciding whether to make a major purchase or take on a major project is to really sit down and think about what you're trying to accomplish. What are the benefits that will flow from your project? At this point, just focus on the benefits. Once you get a handle on those, you can look at the costs, and decide whether (or how) you can afford to carry out your plan.

At the simplest level of analysis, you'll want to make sure that the total costs of any major project you undertake are less than the total benefits resulting from the project. You could simply add up the costs, and then add up your expected revenue increases and cost savings over the next few years, and compare the two.

CDs. Certificates of deposit are a popular tool for investing the cash surpluses of a business. CDs are time deposits with banks and other financial institutions. The interest earned on CDs depends on the amount of time you're willing to part with your cash surplus and on the amount you have to invest. The longer you are willing to part with your cash surplus, and the more you have to invest, the higher the interest rate you'll receive. Most CDs impose a penalty if the certificate is cashed in before it reaches full maturity. Your bank should post the rates it offers for varying terms and deposit amounts.

Sweep accounts can be an effective and easy way of investing any cash surpluses you have. A sweep account is a combination of a regular checking account and a money market account. Sweep accounts were designed with small businesses in mind since most small business owners do not have the time or the large cash surpluses necessary to take advantage of more profitable investments. By combining a regular checking account and a money market fund, sweep accounts eliminate the need for you to estimate bank balances and move funds from your checking to an investment account when necessary.

Treasury bills. T-Bills are direct obligations of the federal government issued at a discount for periods of three months, six months, or one year. Treasury notes, on the other hand, have longer maturities. Treasury bills have been, and continue to be, a popular investment for short-term cash surpluses. They trade on an active market that provides instant liquidity. Treasury bills also provide your business with the option of choosing almost any term of maturity, from one day up to one year, through secondary markets.

Yield is the last factor to consider when making your cash surplus investment decisions. For most investments, the yield is determined by three other factors: risk, maturity, and liquidity. Once you've determined your acceptable level of risk, maturity, and liquidity, the type of investment and the yield of the investment are pretty much determined for you, or at least you've narrowed your options.

Liquidity describes how easily you can access the cash you put into an investment. Some investments are more liquid than others. For example, investing your cash surplus in a money market account is very liquid. You can pull cash from a money market account when you need it without incurring any penalties for withdrawing the funds. Other investments offer less liquidity and have penalties for withdrawing early. A CD (certificate of deposit) is an example of an investment that has this type of penalty if the CD is not held for its full term.

Interest-bearing checking accounts are the simplest method of investing a cash surplus. Since they operate like a regular checking account, no action is required on your part to invest your cash surplus.

Maturity is the term used to describe the length or the duration of your investments. Many investments are made to be held over a certain period of time. An investment that is held for its full duration is said to have been held to maturity. When an investment has reached its maturity, the original investment and any gains or losses earned by the investment are returned to the investor.

The investment of your cash surplus should never be speculative — that is, high risk. As in most businesses, your cash surplus may only be a temporary surplus of cash inflows over your cash outflows. Any permanent losses resulting from a high risk investment could be devastating, even to the point of making you unable to continue your business.

When investing a cash surplus, it's only natural to seek the highest rate of return for your investment. Four factors must be considered when making your investment decisions:

Managing and improving your cash flow should result in a cash surplus for your business. A cash surplus is the cash that exceeds the cash required for day-to-day operations. How you handle your cash surplus is just as important as the management of money into and out of your cash flow cycle.

Paying down any debt you may have is generally the first option considered when deciding what to do with a cash surplus. Rightfully so because a short-term investment of your cash surplus is not likely to yield a return equal to or greater than the rate of interest on any of your debt. It doesn't make any sense to invest a cash surplus at 5 percent when you can pay down a bank loan that is charging interest at 12 percent. However, the decision to automatically pay down debt may not be correct in all cases.

Cash outflows and inflows rarely, if ever, occur at the same time. More often than not, cash inflows lag behind your cash outflows, leaving your business short of money on occasion. Think of this money shortage as your cash flow gap. The cash flow gap represents an excessive outflow of cash that might not be covered by a cash inflow for weeks, months, or even years. Any business, large or small, may experience a cash flow gap from time to time — it doesn't necessarily mean the business is in financial trouble. Preparing a cash flow budget is the best way of predicting the cash flow gaps for your business.

The IRS's payroll tax deposit rules are becoming more and more strict with each passing year. This is the IRS's answer to making sure that all withheld payroll taxes (federal withholding, Social security, and Medicare taxes) are deposited in full, and on time. Even the most careful small business owners can fall prey to one of the IRS's costly penalties for failing to deposit withheld payroll taxes on time. The IRS isn't well know for accepting excuses, either.

Cooperative advertising is a cost-sharing arrangement between you and your suppliers for your advertising. The rules and policies for each cooperative advertising arrangement will vary for each supplier. However, one feature that is common in almost all cooperative advertising arrangements is that you must prominently feature the supplier's product or service in your advertisement. Cooperative advertising can significantly minimize your expenses— in particular, your advertising expense.

Unfortunately, many small businesses continue to pay their employees weekly. Payroll processing and administrative costs for small businesses are quite high mainly because small businesses don't have the sophisticated payroll processing systems that larger businesses with a greater number of employees can afford. Paying employees weekly only compounds this already expensive process, not to mention the time spent by you or your employee preparing payroll checks and updating payroll records. Stopping the weekly payroll routine will definitely minimize your expenses, provided that your state law doesn't require weekly paychecks.

To succeed in business, one of your most important tools is financial analysis based on your business records. The importance of good records cannot be stressed enough. Accurate and timely financial records can help you answer some very important questions. Are you making money (or losing money)? How much? Is your business financially sound, or are there troubles lurking ahead? Bookkeeping is the process in which all valuable financial information is gathered and recorded. Using an outside bookkeeping service may improve your financial records and minimize your expenses at the same time.

When purchasing office equipment, you'll often have the option of purchasing a service contract on the new equipment. In fact, sellers will often go out of their way to try to get you to purchase a service contract. The main reason for this is that the profit margin on the service contract is often greater than the profit margin on the piece of equipment you're purchasing.

Of course, the best way to improve your cash flow, and in particular to improve your accounts payable situation, is to minimize your business's operational expenses and to make sure that you make the most efficient use of every dollar you spend.

Float is the difference between the amount of checks written and deposited according to your own books or records, and the amount of those checks or deposits that have cleared your bank account. The following example should help you understand float.

Your suppliers are extending you trade credit whenever they allow you to purchase their goods or services without making you pay for them at the time of purchase. Trade credit allows you to defer your cash payments to your suppliers in exchange for your promise to pay them in the future, according to their credit terms. Using your trade credit to purchase goods or services from your suppliers creates an account payable.

Some suppliers may allow you a trade discount off the total amount of their invoice if you pay within a specified period of time. The amount of the trade discount is typically 1 percent or 2 percent if you make payment within 10 days. Full payment is normally due within 30 days if you don't take advantage of the trade discount. The amount of the discount and the time in which you have to take advantage of the trade discount can vary from business to business. To a large extent, a supplier's trade discount is based on what is common for the supplier's line of business. Don't be surprised if some of your suppliers offer generous trade discounts, while other offer no trade discounts at all.

The decision to take, or not to take a trade discount is based on a comparison of the costs of the discount to what you earn by taking the discount. If what you earn by taking trade discounts is greater than what it costs you, you should definitely take advantage of the trade discount. This example shows how to determine what you earn by taking a trade discount.

Negotiating extended payment terms with your suppliers is a technique that can be used to delay your cash outflows and improve your overall cash flow. Most of your suppliers will require payment within 20 or 30 days after you receive their bill. If you're like most other business owners, you probably assume that these payment terms are non-negotiable. However, some of your suppliers may be willing to negotiate longer credit terms. Their willingness to offer you better credit terms may be based on one of the following: