• You are here:
  • Home »
  • Cash Flow Management

Category Archives for Cash Flow Management

Getting The Most Out Of Your Cash Flow Management

“When It Comes To Cash Flow Management, Are You Leaving Money On The Table”

Cash flow management can mean a bunch of different things, but in its simplest form, its all about allowing profitable sales to occur on a timely basis while minimizing out flowing cost amounts and improving the timing of inflows and outflows.

Here’s one example that touches on all of these areas and is over looked by many businesses.

A company is in a growth mode in an industry where they are in the middle of a distribution channel.

Even though the company has a strong balance sheet, credit, and cash flow, they can’t find a bank to finance their growth plan as many institutions, especially these days, are cautious towards anything moving too fast. In order to maximize revenues with the credit available, trade credit is stretched out to the max, forgoing all discounts, eliminating potential credit limit increases, and potentially harming credit overall.

The company turns to asset based lending and gets their accounts receivable factored at the god awful rate of 18% per annum, plus transactional fees. Sales double as there is now enough cash flow to cover the gap between collecting money and paying the bills. Trade credit discounts are taken full advantage of also causing credit limits to increase.

The net effect is that the business not only more than doubles its profitability as more sales are being spread over the fixed costs, but the trade credit discounts along are enough to pay for the incremental cost of financing that was created from going from bank margining of accounts receivable to factoring.

Obviously this exact scenario isn’t going to hold true for all companies. The point here is managing cash flow is about generating more net income for the business at the least amount of cost. The least amount of cost doesn’t mean you can’t use higher priced debt to fuel your business financing needs. What it does mean is there ways to gain cost savings in one area to offset increases in another where the net overall effect is going to be positive to the business bottom line, balance sheet, and cash flow position.

The example cited above occurs more often than you might think in growth markets and in some cases the trade discounts generated through more available cash flow are actually greater than the higher cost of asset based debt, driving profit to the bottom line due to use of the higher priced money.

I’m not advocating here that higher priced debt is good or bad. This is about what’s relevant to a particular situation and what net impact available capital will have on a growth situation, regardless of the cost.

If the results are positive, press on and grow the business, all the while looking for cheaper sources of money.

If the results don’t add up, then twist the rubic’s cube in other directions and see if you can find another angle to improve cash flow and profitability.

Click Here To Speak With Business Financing Specialist Brent Finlay

Guide To Debt Consolidation

“Here Are Some Things To Consider Before Going Through a Debt Consolidation Exercise”

While there can be many reasons to undertake a debt consolidation in your business, the single biggest reason, most of the time, is to improve cash flow.

And while cash flow can be constrained due to rapid and profitable growth, the majority of the time it is constrained by some down turn in the business or failure of the business to develop to a level of sustained profitability.

For these types of situations, here are some basic guidelines to consider before entering into a business financing debt consolidation action.

First, start the process as soon as you have consecutive months of cash flow deficits. Nothing about business financing is fast these days, so the more time you have to work through the problem, the more likely you’re going to end up with a workable outcome. And just because you started the process doesn’t mean that you’ll end up completing a consolidation action as things may change in your business for the positive before the process is completed.

Second, cash flow out your business for at least the next 6 months. If the ship is taking on water so to speak, at what point in time is monthly cash flow going to be positive again and how much money is going to be required to get you from here to there? For cash flow shortfalls, debt consolidation typically means refinancing existing debts that have fallen behind or are building up plus adding additional cash to the business to service the new loan until things turn around. There is no point getting a consolidation loan only to immediately fall into arrears with a new lender.

Third, factor in a higher cost of capital than what you’re already paying or not paying. Part of the cash flow exercise is to make sure that the go forward cash flow, post debt consolidation, is going to be positive. If the new cost of capital is significantly higher than what you were budgeting, your whole cash flow plan may go out the window.

There are two ways to do debt consolidation to improve cash flow. The first is to find a refinancing solution that will buy you more time and hope things work out before you run into cash flow problems again. The second way is to figure out a plan to get things corrected in the business and acquire incremental funds through refinancing to make the plan work plus some margin for error. In most cases, debt consolidation is a form of bridge financing that will allow you to get through a certain period of time of financial down turn. When things get better, you may choose to refinance again to accelerate debt pay down and/or acquire a cheaper source of financing.

While no plan is fool proof, having a plan is going to give you a better chance to improve the fortunes of the business and provide greater credibility in the eyes of lenders that are prepared to provide a debt consolidation loan in the first place.

The keys are to start early and be realistic of what the near future is going to look like. Being overly optimistic with respect to near term improvements in cash flow can lead to further problems.

Click Here To Speak With Business Financing Specialist Brent Finlay

Managing Through a Cash Flow Crisis

It’s not unusual for a small or medium sized business to go through a cash flow crisis at some time or another over their life of operation.  In fact, for many businesses, survival of the bad times when cash is thin can even be considered a right of passage towards greater loan term success.


Because going through a very tough period when its hard to make ends meet can be mentally and emotionally draining, leaving a permanent imprint in your brain that 1) you never want to go through that again, 2) you have a much better understanding of how to manage cash flow due to the intensive focus that was required, and 3) you will not likely take cash flow management for granted any time soon.

The biggest challenge of dealing with a shortage of cash where there is less money coming in versus the demands for payment is being realistic with yourself as to what you’re working towards.

A cash flow crisis has to become an internal bridge financing scenario or you’re just putting off the enviable which is business failure.

If you aren’t trying to survive to get to a certain point where events will occur that will correct the problem, you may very well just be destroying your equity and throwing good money after bad.

So no matter how well you count the beans or negotiate with creditors, you can’t play musical chairs for a prolonged period of time with the people you owe money to.  There has to be a defined turnaround point that you’re working towards otherwise how do you make cash flow trade offs or negotiate extended repayment terms.

Lack of a turnaround point somewhere on the near horizon will destroy your credit and credibility, both which are very hard to get back.

The key to managing through a cash flow is project far enough a head to a point where inflows are going to be able to meet or exceed outflows on an ongoing basis and work back from that point to figure out how you’re going to manage through with the funds available and any incremental funds you may be able to acquire.

By doing this, you now have a plan you can sell to your creditors.  If you manage the heck out of weekly cash flow during the crisis, there is a good chance you can get to the otherside.

Just make sure you know where the other side versus staying alive long enough while hoping for something positive to happen.

Click Here To Speak With Business Financing Specialist Brent Finlay

Cash Flow Management Best Practices

Regardless of the type of business or business size, cash flow is going to be the life blood of the business.  So it stands to reason that cash flow management practices are going to also be important with respect to optimizing present and future business profits.

Its also safe to say that most businesses have room for improvement when it comes to managing cash flow as it tends to be looked at as a secondary activity to running the day to day business in many cases.

For a business that is highly profitable, cash flow improvements are focused on the money left on the table that could be used to increase profits.  For struggling businesses, better cash flow management can been the difference between survival and business financial failure.  And for the more middle of the road business scenario, having timely access to cash can have a profound impact on a company’s ability to take advantage of new opportunities when they are presented.

There are three basic elements to the cash flow management process.

First, there is the actual forecasting and tracking of all cash inflows and outflows that are expected or known to the business.

Second, there is having in place any debt or equity capital in place that is required to allow the business to operate in a solvent state.

Third, the profits generated by the business which result in an increase in cash require a strategy to optimize the return on this highly liquid asset.

Of the three elements, forecasting and tracking tends to be the one that requires the most attention and improvement.

Here are some best practices to consider for any going concern business.

  • When developing a forecast, the time period needs to be relevant to all the various payment requirements the business has.  Because expenditures can be staggered all through the month, forecasting should be done on a weekly basis, not a monthly basis.  In some extreme cases where there is a high volume of daily transactions, it may need to be projected out by day of the week.
  • The tighter the cash flow, the more it becomes necessary to  include everything in a cash flow forecast above what value you consider to be material.  For instance, materiality may be set at $500.
  • Cash flow should be projected out at least 6 months and then maintained at that point over time.  For greater accuracy, cash forecasting can be done over a longer period of time by month, say at least one year, and then broken down into weekly increments for the next two months to provider a longer term view of expected future events.
  • The ending weekly projected net cash flow balance can never be negative.  The whole point of the exercise is to develop a cash flow plan where inflows plus the opening balance cover outflows.
  • The tighter the cash flow, the more attention it will require.  Regardless of the stress on cash in a business, cash flow projections should be updated at least once a week.
  • Conservatism should be utilized to show outflows taking place when required, inflows being delayed, and a cash flow buffer or reserve in place for unplanned activities requiring cash or cash forecasting errors.
  • The master cash flow should be prepared and monitored by one person to maintain its integrity and accuracy.  This person must be involved in decisions related to cash so that all trade offs can be properly considered by the decision maker.

Click Here To Speak Directly To Business Finance Specialist Brent Finlay

Cash Flow Management Now Requires Greater Diligence

As I’ve previously written that while the out look reports for the current recession are improving, the after effects are only starting to surface in many cases.

A recession impacts the money supply and the flow of cash through the economy.

When one area of the economy becomes cash flow constrained, the impact will slowly ripple through the rest of the economy through the related connection points.

On more of a micro level, this has the potential to impact businesses of all sizes from several different directions.

First, the business could have its commercial credit reduced by its lender or pulled completely if the lender goes out of business, which they are in record numbers.

Second, the business may not be able to access new credit for upgrades or growth, impacting its ability to perform.

Third, sales may be down to the point that fixed costs are not being covered off and cash flow injections are required.

Fourth, customers may become slow to pay or default payment.

Fifth, vendors may cut back on credit or reduce their own product line of goods the business requires.

All these and other scenarios can create negative impacts to the cash flow.

The most damaging aspect to these ripple effects is that you may not see them coming until its too late to do anything about it, or at the very least, leave you scrambling to address the problem.  When you’re hit with multiple issues from different directions, the impact can be exponential in nature.

This is where proactive cash flow management has become critical in the current business environment.

As a business owner, the goal is to reduce risk where ever possible to assure the long term profitable survival of the business.  Proactive cash flow management has now gone beyond accurate forward projections on inflows and outflows and now must include greater diligence into what could potentially happen to the business and how to mitigate the potential unforeseen risks.

And cash flow protection is likely going to cost additional money, but the alternative of not being proactive can cost substantially more.

Examples of more proactive measures could include:

  • Accounts receivable financing for larger customer accounts.
  • Credit reviews of existing customer accounts and a review of credit granting policies to new customers.
  • Applications for credit with additional vendors.
  • Development of an additional vendor list even if credit is not available.
  • Internal operating cost reduction strategies.
  • Inventory reductions.

Most business owners are too busy with their businesses to believe they need or have time for any of these activities.  The assumption is that if they get in some sort of cash flow bind, they can borrow their way out of it.

The reality is that business financing for distressed cash flow is a hard ticket to come by these days and some of the forms it comes in if you can find it are very pricey.

The recession is far from over.  Financial markets are basically in disarray and have become completely unpredictable.

Whether you get hit by the storm or not isn’t the issue.

Whether you can survive a hit or multiple hits is.

Click Here To Speak With Business Financing Specialist Brent Finlay

When Not To Look For Cash Flow Funding

If you’ve been in business for any length of time, I’m sure you’ve heard the expression, “I can only get financing if I don’t need it”.  You may have even said it yourself.

This is usually uttered out of frustration when business owners and managers are trying to get financing for cash flow deficiencies or debt consolidation actions to improve their cash flow funding.

And yes, at the time of financing is when the money is needed most, yet it can be so elusive to obtain, or if you can obtain it, the related cost is in the stratosphere.

Unless this cash flow crunch is fueled by an abundance of extra work or orders that came out of left field, then this is definitely the wrong time to apply for financing.


Several reasons.

First, you’re presenting your business to lenders or investors at a point of weakness.  You need to be marketing a business opportunity where they can make money.  It can’t look like you’re asking them for a favor that would put them into an uncomfortable position.

Second, if the debt didn’t accumulate over night, what were all the company’s financing decisions that led up to this point, and why were they made prior to looking for more financing?  If recent history shows more of an I will take anything I can get financing strategy that includes several sets of arrears payments that are months behind, then there is nothing to inspire lender confidence.

When you get into these types of situations, additional capital is going to be very hard to come by and the key to survival will lie in the ability to simplify the business, work with existing creditors, and manage within the cash flow you have to work with already.  If additional capital must be acquired to make anything work, then you may have to take on higher priced debt that will further erode your equity.  Just make sure there is a cash flow plan that can work with any new debt additions, or its not likely going to be worth signing up for.

Seeking business financing is about working from a position of strength, or relative strength.  It also means looking ahead to see what the near future is going to be like and being realistic with yourself about how things may unfold with respect to your cash flow.

Even if you are only suspicious of more challenging times being ahead, then start at that point to build your financing contingency plan by either accessing more debt or equity capital, or start cost cutting to build a cash reverse out of your monthly cash flow.

From a lender’s point of view, especially lower cost lenders, when you need more money for cash flow is a future event that has been planned for versus an unplanned event that has been ignored or avoided leading up to the current cash flow problems.

The harsh reality is that lower cost financing is for lower risk situations.  If you’re already in the soup to some degree with your cash flow, the business risk is higher and as a result the interest for helping you will be less and also more ruthless because the lender or investor is in a much stronger position to dictate terms.

Click Here To Speak To Me About
Funding Cash Flow and Other Business Financing Topics of Interest.

Cash Flow Management Trade Offs

As we continue through the current recessionary impacts still being experienced in 2010, there are going to be periods of time where a cash flow crunch will impact many businesses regardless of size.

So when there is less cash to go around and choices are going to have to be made as to who gets paid and who doesn’t, here are some things to consider.

First, build out a cash flow plan that identifies the available amount of money you are likely going to have to work with once you allow for all essential expenses including your payroll.

Next, proactively talk to your trade creditors and outline to them your plan to get them paid.  They may not like what you have to say, but they’re going to be more likely to work with you if you ask versus just surprising them by not paying without an proactive explanation.

Third, think twice about getting behind with your government remittances, especially payroll deductions.  Government agencies have the right to seize your bank account and contact your customers for repayment of accounts receivables.

While it may seem like the obvious choice to short pay government agencies, be careful with this tactic because of the power to collect these agencies have.

Fourth, update your cash flow projections on a regular (at least weekly basis) and make adjustments to your plan as required.  Nothing ever goes according to plan, especially when it depends on the actions of others, so continually develop a new base line to work from, make adjustments to your plan, and communicate any changes as required to parties you owe money to.

Fifth, if you need to dip into personal credit cards, at least make the minimum payments to minimize the damage to your credit rating.  High credit utilization will bring down your credit, but it will quickly bounce back once your balances are paid down.  Late payments of greater than 30 days on the other hand, can have a devastating impact on your credit that can last for years.  If you eventually need to refinance, keeping your credit in tact will become important to avoid the lowest forms of credit.

Most payment trade offs are judgment calls that are better made and managed when you develop intimate knowledge of your cash flow and maintain close communication with your creditors.

Here’s where you can go to get more information on business financing.

Equipment Leasing Can Save Cash | Small Business Cash flow Management

If You Have Good Credit, There Are Several Ways Equipment Leasing Can Save Cash

As 2009 draws to a close, cash flow management is still a high priority for most small businesses these days due to the ongoing impact  of the current recessionary forces.

In order to preserve cash and get more purchasing power, here are some small business cash flow management tips to consider if you’re not already doing them.

Equipment Leasing.  Now a days you can get equipment leases for just about anything over $1,000 in value.  If you have good credit, you can secure some pretty attractive leasing rates and if you’re buying something that offers a manufacturer sponsored program, the financing costs can be extremely low.

You still have to crunch the numbers to see what comparable products are worth from other suppliers as its a common strategy to give you a great financing package and then jack up the price to offset what the seller is subsidizing on the equipment financing side.  But in a recession, where sales are down, you may be surprised at the opportunities that exist for both a great purchase price and a great financing package.  In some cases, it may even be cheaper than just paying in cash.

Ultimately, there is going to be a net cost for financing, likely, but if you’re taxable, there is a tax deduction to be had and when the interest rates at all time lows like they are right now, a small cost of financing that allows you to maximize your available cash is definitely something to consider.

Equipment leases offer other cash advantages as well, especially for businesses with good to great credit.   In most cases, you will be able to buy assets for no money down except for one or two lease payments paid in advance.  This high degree of leverage again conserves on valuable cash flow.

I’m not going to get into the operating versus capital lease discussion other than to say that an operating lease needs to provide some significant benefit to you because it will cost more per dollar financed than a capital lease.  With a capital lease, you basically agree to purchase the asset at the end of the lease from the lease company and you agree to do this at the time the lease is entered into.  Capital leases tend to provide you with the lowest cost financing options as there is no back end risk to the leasing company.

Additionally, regardless of your credit rating, equipment leasing defers the related sales tax associated with the purchase meaning that you only pay sales taxes on your lease payments when they come due versus having to pay 100% of the sales taxes at the time the asset was purchased in a cash transaction.

And if you get the chance to get a great deal by making a cash purchase, get the deal done, then go to an equipment leasing company, sell them the asset and take back a lease (sale and lease back).

Equipment financing companies will allow you to do this up to 6 months after purchase and they will even consider private sale transactions.

This way, if you have the available cash, you can negotiate hard and get the best deal without having to try and arrange financing at the same time.  If you’re concerned about being able to qualify for credit after the fact, you can go and get pre-qualified for an equipment lease for the amount of money you’re looking to spend and the type of asset you want to acquire.

Equipment leasing can be a very effective cash flow saving strategy.  To get the best use of this tool, make sure that you always crunch the numbers to  determine the best approach to maximize both the cash flow savings and purchasing discounts.

Managing The Cash Flow Gap | Working Capital Bridge Financing

Cash Flow Gap Management Can Be The Key To Growth And Stability

For this discussion, I define cash flow gap as the difference between the timing of cash inflows and outflows.  For instance, if your supplier terms are 30 days and your customer terms are 60 days, you will have a cash flow gap to fill with some form of working capital financing.

Even if the terms are equal, there could still be gaps or delays between the time an expense incurred needs to be paid and when the revenues related to the incurred expense get collected.

Some operations are fortunate in that they don’t have a cash flow gap at all.  However, in most business cases, there is a need to finance gaps between inflows and outflows on a regular or semi regular basis.

The working capital financing can come in the form of cash from the business itself, an operating loan that is connected to the business bank account and goes up and down as required, shareholder loans, term loans, factoring of accounts receivable, inventory financing, and so on.

For profitable operations, the financing of a cash flow gap is temporary in nature and is effectively bridge financing where the beginning and the end of a cash flow gap is clearly defined.

For operations that are currently unprofitable, the cash flow gap actually creates a longer term liability as the loss position must be covered off from financing for as long as its required for the business to get back into a profitable position and repay the debt.

The keys to managing the cash flow gap are as follows:

  • Work to match up the days outstanding for trade payables with the days outstanding for accounts receivable.  Gaining a few days through closer management will reduce the cash flow gap.
  • If you work on projects, try to match the project costs with the related expenses when negotiating terms and making payments.  If a supplier is aware of the project they are supplying for,  make sure they understand that they will get paid when you get paid.  Suppliers are more likely to work with you on payment delays if they know you are matching the revenues you receive to the project.  In order to make this an effective strategy, make sure you are only working with credit worthy customers that the supplier will be comfortable with.
  • Assess the benefit of payment discounts versus available working capital.  Taking advantage of an early payment discount from a supplier will actually increase your cash flow gap, but this may be worth doing if you have the working capital available and the cost of the working capital is less than the discount you will receive for paying early.
  • Forecast out your cash flow for at least 6 months.  If you’re in a growth mode or in a seasonal business where sales spike, make sure you understand when cash flow gaps will occur, how much capital they will require, and how long they will last.  If you’re going to require more capital than you now have available, you’re going to need some time to secure capital prior to the period of need.
  • Focus on higher margin products and services to offer.  If the cash flow gap is increasing, it may be negatively being impacted by growth in lower margin products and services, or a change in your mix that has lowered your overall margins.  Again, good forecasting and periodic sales review should help identify the size, timing, and duration of cash flow gaps as well as their causes allowing you to take proactive measures to avoid the business being negatively impacted.

Cash Flow Choices To Carefully Consider

When Managing Cash Flow Shortfalls And Gaps, Consider These Watch Outs

When a small business cash flow gets tight, there are going to be tough choices to make regarding who gets paid and who’s payments are going to get delayed.

If you have employees, then its going to be important to allocate available funds to payroll to keep them coming to work.  If you require services and materials from suppliers, then timely payments are likely required to keep the lights on and production running.

So where do you cut back on outflows?  Who do you decide not to pay?  One of the most common choices made for delaying payments is government remittances.

Payroll deductions, income taxes, sales taxes, etc.

For many small business managers and owners, this seems like a logical choice…i.e. the government has lots of money, no one is in your face right away for payment, the money due is not critical to your ability to operate, and so on.

And in many cases, arrears with government related accounts can build for months before you start getting more serious sounding requests for payment.

While the government may be somewhat slow in reacting to your missed payments, their ability and powers to collect what you owe (depends on country and jurisdiction) can be far reaching.

How far reaching?

They can freeze the business bank account.

They can seize the cash in your account.

They can contact customers that owe you money and direct them to make payment to them.

And, if you owe funds for payroll source deductions, they can come after you personally regardless if the company in incorporated if you are a director of the company.  Director liability can include payroll related expenses.

To be clear, I’m not a lawyer and all of the above may or many not apply to the jurisdiction that your business falls under.

But, regardless of where you reside, government collection activities can be scary.  An once they have a bead on you, your cash flow planning will need to take on new priorities.

If you are in this situation, or close to it, you may be able to negotiate repayment terms for the arrears over a period of future months provided that you can clearly display a workable plan.

The overall point here is to be careful with delays in paying government remittances of any type, but especially payroll deductions.  If you get to the point where you’re bank account gets frozen, it could be difficult to impossible to resolve the government back taxes and still continue to operate