©2011 RAN ONE Americas

Participants Guide

Managing Your Cash Flow

©2011 RAN ONE Americas

Managing Your Cash Flow

Cash flow is a key indicator of a business’ financial health. Knowing how to maintain a healthy cash flow is essential to a successful business.

But managing cash flow is one of the most difficult challenges facing owners of SMEs and an unplanned drop can put them out of business even as demand for their products or services is growing, or as they are about to turn the corner of a downturn.

Properly managing cash flow is a matter of both good overall planning and effective use of cash flow strategies. This BGR explains the importance of cash flow management, the need to develop cash flow forecasts that track the inflows and outflows of cash, and the reasons why it should be regularly updated.

This set of Support Resources will provide you the slide visuals used in the recorded video. Work through the slides and take notes along with the video. Tips:

After starting the video you can double click on the window or click on in the video tool bar to view full screen.

Make sure to download the action plan for the next steps

Talk to your RAN ONE Business Advisor about the services they have to assist you NOTE: Some slides may be different from the video used.

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Managing Your Cash Flow

MANAGING YOUR CASH FLOW

Cash Flow - Lifeblood Of Your Business

• An understanding of the concept of cash flow

• Why CASH and not PROFIT, is king

• Why tracking and managing is critical

• Why cash flow forecasting is so important

• Strategies to improve your cash flow

What You’ll Take Away From Today

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Managing Your Cash Flow

The three components of cash flow:

• Funds on hand at the beginning

• Funds received and spent

• And the funds remaining at the end

What Is Cash Flow?

• Profit is the difference between your earnings

• Cash is the amount you have to pay debts

• You can be showing a good profit while strapped for cash

Cash Is NOT Profit

Cash is NOT Profit

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Managing Your Cash Flow

Cash is

KING

Cash Not Cash

Coins and notes

Current accounts and short term deposits

Bank overdrafts and short term loans

Foreign currency and deposits that can be quickly converted to your currency

Long term deposits

Long term borrowing

Money owed by customers

Stock/Inventory

What’s Measured in Cash Flow?

The Cash Flow Cycle

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Managing Your Cash Flow

Borrowing Capacity / Shareholder Input

Accounts Receivable

CASH FLOW

RESERVOIR

Tax Plant &

Equipment

Interest Inventory &

Manufacturing Expenses

Operating Expenses

Dividends

Goods Sold

The Cash Flow Cycle

Cash Inflows and Cash Outflows

• Cash flows rarely coincide

• You must be able to meet your scheduled payments

• Cash flow management is about speeding up inflows and slowing outflows

Cash Inflows and Cash Outflows

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Managing Your Cash Flow

Key Requirements Of Your Cash Flow

Cash flow forecasting enables you to plan for:

• How much cash your business needs

• When it’s needed

• Applying for financing if shortfall

• Managing excess funds

Cash Flow Forecasting

• Receipts

• Payments

• Opening bank balance

• Closing bank balance

Elements of a Cash Flow Forecast

• Excess of receipts over payments - with negative figures shown in brackets

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Managing Your Cash Flow

A cash flow forecast structures your business to meet your cash needs

Using The Forecast

To improve cash flow you need to work on the drivers of cash flow:

• Receivables

• Suppliers

• Inventory

• Assets

• Costs

• Trading pattern

• Trading volume

Improving Cash Flow

Strategy: Manage Receivables

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Managing Your Cash Flow

• Define a credit policy that clearly sets out your standard payment terms

• Consider offering discounts for prompt payment

• Issue invoices promptly

• Regularly chase outstanding payments

• Consider charging a penalty interest for late payment

• Negotiate deposits or staged payments

• Consider debt factoring

Strategy: Manage Receivables

Strategy: Manage

Suppliers

• Defer payments

• Claim discounts

• Ask for extended credit terms with caution

Strategy: Manage Suppliers

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Managing Your Cash Flow

Strategy: Manage Inventory

Strategy: Manage Assets

• Finance operations out of working capital

• When purchasing an expensive machine match repayment period to the expected lifetime

Strategy: Manage Assets

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Managing Your Cash Flow

Strategy: Manage

Costs

Strategy: Manage Trading Pattern

Minimise peaks and troughs

Even out income flow by:

• Market to sell more in the ‘trough’ periods

• Encourage non-urgent customers to wait

• Vary pricing to shape demand

Strategy: Manage Trading Pattern

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Managing Your Cash Flow

Overtrading can result in major cash flow problems

Strategy: Manage Trading

Borrowing as a

Strategy

Measuring Your Performance

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Managing Your Cash Flow

Key performance indicators (KPIs) indicate business performance. Monitor drivers such as:

• Inventory turnover

• Days receivable

• Days payable

Cash Flow Key Performance Indicators

• Determine what needs to be monitored

• Input actuals and compare them

• Identify where they vary

• Take corrective action

Steps To Developing And Monitoring Your KPI’s

• More businesses fail because of poor cash flow than because of poor profit

• Cash flow should be planned and managed

Summary

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Managing Your Cash Flow

Next Steps

Building a Winning Team

Thursday 23rd June

The Elevator Speech

Thursday 28th July

Perceived Indifference Disease Are you suffering from it?

Thursday 25th August

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