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Managing Cash Flow

Managing Cash Flow. By Umaesh Khaitan, CEO EcoDesign World LLC. December 9, 2012. The 4 Wheels of a Business. What is Cash Management?. In its simplest form of money moving in and out of your company’s bank account. That is the cash flow of your business.

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Managing Cash Flow

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  1. Managing Cash Flow By Umaesh Khaitan, CEO EcoDesign World LLC. December 9, 2012

  2. The 4 Wheels of a Business

  3. What is Cash Management? • In its simplest form of money moving in and out of your company’s bank account. That is the cash flow of your business. • Cash flow is the blood in the veins of your company. The health of the blood is the primary indicator of business health. • Cash flow in tough times is more important than profit. The effect of cash flow is real, immediate and, if mismanaged, totally unforgiving. • Cash needs to be monitored, protected, controlled and put to work. • Managing cash is more important than earning cash.

  4. Why Cash Flow is Needed? • As Management, you need to know whether the organization will be able to cover payroll and other immediate expenses • Potential lenders or creditors, who want a clear picture of a company's ability to repay • Potential investors, who need to judge whether the company is financially sound

  5. How do you start with Cash? • Starting a business has its challenges. Many business’ GOOB because of their failure to manage their cash flow. • You arrange for Cash in the following ways: • Angel Investors • Friends & Family Loan • Bank Loan • Supplier’s Credit • Financing from Customers • Creating TRUST amongst all Stake Holders – Boot Strapping

  6. Advantages of managing cash flow • You should know where your cash is tied up • You can spot potential bottlenecks and act to reduce their impact • You can plan ahead • You can reduce your dependence on your bankers and save interest charges • You can identify surpluses which can be invested to earn interest • You are in control of your business and can make informed decisions for future development and expansion

  7. Cash Conversion Period The cash conversion period measures the amount of time it takes to convert your product or service into cash inflows. There are three key components: • The inventory conversion period – the time taken to transform raw materials into a saleable product. This is important for both manufacturing and service industries. A manufacturer will have funds tied up in physical stocks while service organizations will have funds tied up in work-in-progress that has not been invoiced to the customer. • The receivables conversion period – the time taken to convert sales into cash receivables. • The customer credit period – Most commonly Net 30 Term • The payable deferrable period – the time between purchase/usage of inputs e.g. materials, labor, etc. to payment.

  8. Cash Flow Budget The cash-flow budget projects your business cash inflows and outflows over a certain period of time. A typical cash-flow budget predicts cash inflows and outflows on a month-to-month, weekly or daily basis. Let’s look at a Weekly/Monthly Cash Flow Model… (WE WILL NOW WORK TOGETHER IN AN EXCEL SAMPLE CASH FLOW SHEET)

  9. Things Not to Do • Do not ever run your business without making a weekly Cash Flow • Do not ever buy equipment or any Capital Equipment for your business from working cash in your company, unless the purchase is funded from profits, equity or loans • Do not ever commit to pay someone with a promised date without knowing exactly where the money is coming from for that particular payment

  10. Summary of Learning • Looking ahead on your cash position gives you the power to stay on top of your game. • It gives you the power to plan and keep your promises • It gives you the power to make informed decisions for future development and expansion • It gives you the power to build TRUST, RELIABILITYand STRENGTH

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