Many privately owned businesses don’t have a CFO per se, but have a chief accounting officer in the form of a Controller or Office Manager who is responsible for all of the accounting functions of the business. Cash management, or cash flow management, is usually left to the Owner, Controller or Office Manager as time allows, resulting in cash being managed most of the time based on the daily balance in the company’s bank account.
Analyze the timing of when your customers are paying you and when you are paying your vendors. Are you managing customer relationships so they are always paying you in time for you to pay your vendors on time? Are you budgeting your capital expenditures for the time of year when you have the most cash? Are you factoring debt service payments into your cash management planning? Are you planning for the seasonality of your business? Are you analyzing the average daily balance in your account to determine when it is highest and when it is lowest and making adjustments to help maximize cash during the low periods?
Looking at and managing the changes in balance sheet accounts is crucial in managing the cash flow of a business. You can be very profitable and cash poor if your receivables are going up, inventory is going up, you’re spending money on equipment and paying debt service. Net Profit does not always equate to positive cash flow.
Cash management is about managing changes in the balance sheet as much as it is about managing costs of goods sold and expenses. Are you looking at increases and decreases in your balance sheet accounts and identifying key aspects of your business to focus on in the next 30 days to help maximize your cash? Are you identifying longer term projects you need to start working on and are you diligent about spending time on those projects?
One of the best ways to help your company’s cash management is to sit down with department managers on a regular basis and help them understand how what they do affects the cash flow of the business. Are they managing their department to maximize profit, maximize their pay check, increase sales or maintain customer relationships without taking into account how their actions affect the cash flow of the company? Managing cash flow is a lot easier if the managers that can have the most impact on the cash flow of your company understand how their day-to-day activities affect the company’s cash.
Are you also taking into account the seasonal aspects of your business? I spent fourteen years in the retail automobile business. I knew Nov-Feb were the slowest times of the year. I also knew there would be a lull in April due to the tax filing deadline and a lull in August right before and after school started back. If you study the seasonal aspects of your business and plan ahead, you can help your organization through the slower times by good cash management during the busy months.
Cash is king. Profit does not always equate to cash, and good cash management skills involve a lot more than managing a profit and loss statement. If you’ll also look at the changes in prepaid expenses, receivables, inventory, fixed assets, accounts payable, other short-term liabilities and notes payable on a weekly or monthly basis, you’ll be in better position to manage, and therefore maximize, the cash flow of your business.
For more information contact Greg DeFoor at 678-919-2230 or gdefoor@defoorservices.com
Corporate Office