cash flow management
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Cash Flow Management
Presented by: Frank Coker
CompTIA Faculty
CEO, CoreConnex, Inc.
What is Cash Flow Management?
It’s all about Alignment(think wheels on your car)
What should you do if you have a problem?
Worst Actions• Go faster• Go off-road• Fast in the
curves• Over-inflate• Under-inflate• Ignore
Best Actions• Slow until fixed• Avoid curves• Use straight
roads• Monitor tires• Keep right
pressure• Fix alignment
Why do Small Businesses Fail?
• Reason # 1 – motivation - the owner gives up.• Reason # 2 – resources - cash can’t keep up
with growth.
What is the ideal?
Healthy Cash Flow- growing revenue
- growing cash balance
Unhealthy Cash Flow- growing revenue
- falling cash balance
Required: must monitor monthly trends
How Does it Work?
Ideal Cash Balance
Average Cash Balance + Available Line of Credit > 2x Average Monthly Revenue
• Average Cash Balance = average month-end balance after routine monthly payments are made for the most recent 3 months
• Available Line of Credit = bank line of credit and company credit cards minus any credit balances
• Average Monthly Revenue = average total monthly revenue for the most recent 3 months
Average small business has < 1x Average Monthly Revenue + LOC“Living on the edge”
Cash Management Process
Tactical (cope with wheels that are out of alignment)
• Prioritize bill payment• Collect receivables• Reduce costs• 30 day cash plan
Make ends meet
Strategic (keep wheels in alignment; plan a destination)
• Adjust prices– Lower to increase volume– Higher to increase margin
• Set/track goals• 90 day cash plan
Achieve goals
Before the Sale
• Set the correct Price– Research– Strategize your value-add– Don’t be afraid to lose some sales
• Up Front -- Don’t do Business with a Customer if you aren’t sure they can, and will, pay– Dun and Bradstreet– Ask for Financials– Ask Around
• Don’t continue doing business with Customers who don’t pay
Getting Payments from your Customers• Nemesis for many Small Business Owners
– Expect Prompt Payment - Have the Conversation – Invoice immediately when service rendered
• Charge for Overdue Accounts .. 1-1/2% per month overdue after 30 days is standard – On invoices, state payment due immediately or within 10 days,
not 30
• Start a new Overdue Account policy, notify your customers – and do it!
• Be creative with customers,e.g.,partial payments• Bank Regularly
Controlling Receivables
• Terms for projects and large hardware/software purchases:– Advance Payments/Up-front Deposits– Direct Payments b customers to Manufacturer/Distributor before
shipment– Progress Payments
• Terms for Managed Services– Payment for Month in Advance– Deposits
• Retainers for T&M?• Software development … funded by customer?
Collections
• Expecting prompt payment up-front is best
• You have to be the collector– Collection Agencies– Factoring
• Persistent Calling• Get form letter from
attorney• Small Claims Court?
Expenses – Control before they Happen• Re-evaluate all expenses routinely and periodically
– Scrutinize monthly “built-in” expenses like janitorial, wireless phones, etc.
– Watch out for “hidden fees”– Periodically shop vendors
• Delay purchasing• Utilize discounts• Track rewards and utilize• Buy in Bulk when appropriate• Work with vendor and spread out payments• Reward employees for cost-cutting ideas
Making Payments - Payables
• Flip side of Receivables:– Delay payment until invoice is
due, specifically until overdue charges begin
– Overdue at 1-1/2% is expensive– Negotiate to delay/drop overdue
charges
• Scrutinize invoice and don’t pay unnecessary
• Avoid advance payments, deposits, retainers, progress payments
Credit Lines and Buyer Financing
• Part of Many (Most?) Channel Programs– Offered by most Distributors and Major Manufacturers– Also Commercial Financing Operations (e.g., GE Capital)– Go by various names – Working Capital Credit Lines, PO Credit,
Inventory Financing, Partner Credit Financing, Etc. – Letter of Credit – variation offered by banks
• Characteristics– Varying credit amounts available– Varying terms (free period, interest, repayment amount, etc.)– Terms often change in parallel with economy– Frequently tied into PO processing– Frequently must pledge inventory / receivables to secure credit– Larger deals may require end-user credit and/or direct payment
End-User Leasing
• Offered by Many Manufacturers
• Good for large “purchases” by credit worthy end-customers
• Varying Terms -- Negotiate, Negotiate
• Accounting Rules may be changing
Inventory
• Inventory might as well be cash sitting on shelves• Minimize the inventory
(let vendors carry inventory)• Monitor the inventory “turns”• Get rid of obsolete inventory
Financing Using Company Assets
• Equipment/Vehicle Financing– Leasing– Borrowing against (secured)– Better rates than unsecured loans– Easier to finance new equipment/vehicles
• Real Estate – Renting/leasing– Financing limited to extent you have equity– Typically the best financing rates– First Mortgage– Second Mortgages/ Line of Credit
• Easier to obtain “when you don’t need it”
Employment Cash Flow Techniques • Outsourcing
– Delays payment 30-to-60 days vs. hiring employees– Need to exercise care – employee vs. independent contractor
rules
• Salaries/Bonuses– Pay less in salary / more in bonus (bonuses defer payment until
year-end)– Commissions / Pay for Performance– Equity
• Benefits– Insurance Companies won’t allow late payments
Taxes and Dealing with the Gov’t
• Tax Payments– Employment Taxes
(Federal and State Withholding, FICA, Unemployment, etc.) Don’t Mess With!
– Sales and Use Taxes Don’t Mess With!
– Estimated Federal Income Taxes – Tax Accountant
• Property Taxes, Permit Fees, etc. – Pay when Due
Unsecured Loans, Credit Cards, Personal Loans, etc.• Credit Cards
– Employee Credit Cards and then Reimburse?– Company Credit Cards – Pay on time if possible
• Loans– Personal Credit Lines / Personal Pledges on Company Credit
Lines– Home Equity, Second Mortgages, and other Asset Backed loans
• Shop Around
Cash Flow Planning
• Typically done for 90 days at a time
• Engage Accountant or Do it Yourself– P&L Management essential
• Cash Inflows minus Cash Outflows– Timing Difference between
Outflow for Purchases and Inflow for Collections
Cash Inflows: Month 1 Month 2 Month 3
Customer Payments
$20,000 $35,000 $18,000
Other Income $1,500 $800 $1,200
Total Cash Inflow: $21,500 $35,800 $19,200
Cash Outflows
Hardware Purchases
$12,100 $6,400 $15,800
Salaries $12,000 $12,600 $13,000
Other Expenses $6,500 $6,900 $6,750
Total Cash Outflow
$30,600 $25,900 $35,550
Net Cash Flow ($9,100) $9,900 ($16,350)
See CompTIA Cash Flow Management Guide for more detail
Strategic Process – Monitor Trends
• Financial Dashboard• Benchmarks• Business model calculator• Analyzes data from Your Accounting System
– QuickBooks (automated)– MYOB (Australia, New Zealand - automated)– Other Accounting Systems (file import)
• Goal tracking• Solution for showing financial progress to your team
What is CorelyticsTM?
Special Edition for CompTIA Members
What Benchmarks Exist?
• Corelytics© by CoreConnex, Inc. (www.corelytics.com)
• CompTIA sponsorship of Corelytics Financial Dashboard• S-L Index™ Included in Corelytics
• S-L Index™ by Service Leadership, Inc. (www.service-leadership.com)
• S-L Index™ Comprehensive Diagnostic Report©• S-L Index™ Quarterly Comprehensive Report©
Monitoring Trends
Problems when:• Revenue up and cash
down• Expenses growing
faster than revenue• Cash fluctuations are
extreme• Revenue fluctuations
are extreme
Strategic actions:• Set goals with
management team• Ask team to help close
the gap between actual and goal line
• Keep the team informed using graphs
• Compare to industry benchmarks
Wrap Up
• P&L Management – for tactical process• Balance Sheet – for strategic process• Accelerate the Sales and Collection Process• Manage Expenses• Delay the Expense and Payment Process• Credit Lines and Buyer Financing• Company Financing and Employee Payments• Cash Flow Planning
• Questions?Dashboard at:
CompTIA.Corelytics.com
References and Additional Materials• CompTIA website (www.comptia.org) – Member
Resource Center – under Business Management Finance
• Corelytics – www.coreconnex.com for overview• Sign-up – CompTIA.Corelytics.com • Service Leadership – www.service-leadership.com
CompTIA Benefit:
Free Financial ReportSee your trends, financial strength and future forecast
Free Financial ConsultationCompTIA members get consultation with Financial Expert
How?• Email: [email protected]• Subject: Financial Strength• Text: Your contact information & your
current accounting system
Questions?
Thanks!