Posts Tagged ‘managing cashflow’
Getting The Most Out Of Available Cash
September 6th, 2011
“Is Your Business Using Cash As A Hammer Or A Nail?”
Even though we are living in a credit centric time where cash management is becoming more of an after thought, the power of cash or being in a cash position is and will always be considerable for those that know how to properly manage cash.
When I’m talking about cash, it can be actual cash in the bank or a revolving line of credit that has funds available against the approved limit.
In either cash, we are talking about the lowest cost form of money you have at your disposal and how you should be managing it.
When I speak of getting the most out of cash, its based on having a good working understanding of what the cash flow will look like over a period of time as well as cost/benefit relationships between receiving cash and making cash payments.
Everything thing in any business can be boiled down to two things … time and money. Everything you earn and spend will result in a cash transaction at some point in time. Everything you acquire or need to repay will have a specific payments required at a closing rate or scheduled payment date.
By understanding the expected inflows and outflows of your business in sufficient detail, you can determine how to best utilize cash to get more than face value.
For instance, paying suppliers within a discount period may provide a greater return on cash than buying an asset for cash that could have been partially or completely financed.
Collecting money sooner than later provides more cash in hand to apply in the business, but what types of cash or non cash incentives have to be provided to do so?
The first step in any form of serious and worthwhile cash flow management is to complete a cash flow forecast.
I recommend that any business forecast the future inflows and outflows of their business for at least 90 days, and turn it into a rolling forecast by updating it at least once a week, adding an additional week into the future and carrying forward and/or adjusting inflows and outflows that have not been resolved on schedule. Also, cash forecasting should be done in weekly time segments as monthly segments are too long an interval to match up inflows and outflows.
By going through this exercise at least once a week, you have a much better perspective of the cash that’s going to be available at any point in time as well as when cash may be short or in jeopardy of being short.
This can be extremely useful in situations of business distress and business growth.
In situations of distress, its going to be important to understand exactly when all commitments are going to be coming due, which ones can wait, which ones will require some servicing, and so on. Its going to be important to make sure that funds are available every pay period to pay salaries, otherwise everything will quickly grind to a halt.
In situations of growth, more capital may be required to fuel growth in the form of more inventory, more equipment, more working capital, more accounts receivable.
Properly utilizing cash to keep the balance sheet in order and leveraging cash to its fullest to secure cheaper forms of business financing can be instrumental in funding growth.
But getting greater mileage out of cash starts with weekly cash flow forecasting, months into the future.
The sooner you start to incorporate this type of discipline to your weekly routine, the sooner you will start seeing the benefits.
Click Here To Speak A Business Financing Specialist For All Your Cash Flow Management Requirements
Business FinancingBusiness Finance | Year End Reflection
December 16th, 2009
Business Finance Goal Review For 2009 and 2010
If you’ve spent any amount of time on this blog, you’ll here me talk repeatedly about what I call the 80/20 of business finance which comes down to three things”
- Securing the capital the business requires when it requires it.
- Managing the cash flow of the business to meet operational needs and minimize costs.
- Continually working towards the exit strategy of the business and in the process making sure everything the business undertakes supports and enhances the long term value of the enterprise.
So in 2009, how did you do?
As a business manager and owner, did you stay at a strategic level and manage the finance elements of the business through these three focus areas.
Has the business improved in each of these areas over the course of the last 12 months? What about what lies ahead in 2010?
The December year end is a time for celebration in many parts of the world and for many businesses, its also a time of year end planning, next year planning, and overall performance measurement.
Just remember that to have the financial success your seeking, the business finance side of the business needs to be managed and kept in balance with the marketing side.
And to me, there is no better place to start increasing your returns and future probability of success than through getting more focused on the three things mentioned above.
Finance doesn’t have to be hard, but it does have to be directed. Leaving all the business financing decisions up to the bean counters is just asking for trouble.
The key is to identify the metrics of the business that everything summarizes into so that you can quickly understand the overall health of the patient without knowing the inner workings of each moving part.
I had a Brazilian boss for a year and a half during my time working for a large multinational company. Whether it was because he was Brazilian or a type triple AAA personality, I’m not sure, but he thought he knew everything about everything. As a marketing person by nature, finance was something he needed to learn to do his job.
So every month, we would sit down and I would produce one piece of paper with all the key metrics of the business, all the things we needed to measure to make sure that the three core elements of finance I have mentioned were intact and functioning properly.
We would sit there and debate each item… why this was up and why this was down. His goal was to show me in less than an hour each month that he knew more about our financial position than I did, and my goal was to survive the interogation.
But the process did serve a purpose. At least once a month, even at a high level, he took the time to zero in on business finance and see if everything was in balance and if it wasn’t, to identify the actions required to get things to where they needed to be.
My boss wasn’t the finance expert, I was (of course I never told him that). And he didn’t have to be. He needed to manage the overall business and stay at a strategic level. And that’s exactly what he did.
Business Financing