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www.craigscopy.com | Module 10. cash flow formula v1.3
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www.craigscopy.com | Module 10. cash flow formula v1.3



Tenth part of a 10 part series from the presenters of Finding Cash in Your Business podcast and book. Get Cash in quicker, handle it better and leverage it's power.

Tenth part of a 10 part series from the presenters of Finding Cash in Your Business podcast and book. Get Cash in quicker, handle it better and leverage it's power.



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www.craigscopy.com | Module 10. cash flow formula v1.3 Presentation Transcript

  • 1. Finding Cash in your BusinessWays to find cash you didn’t know you had, and attract cash you didn’t now you needed.The essential business guideModule 10 Cash Flow Review of YOUR Business
  • 2. Learning objectives
    Meaning of Bankrupt
    The Golden age of Bankruptcy
    The Cash Flow Formula
    Top tip
    Creating Cash Awareness
  • 3. The Golden Age of Bankruptcy
    The United States financed and built 75,000 miles of track, in the 1880s, doubling the size of the existing railroad network. The ability of the Railroad companies to compete with each other on the expansion of their networks and consumption of investment Capital had taken on more significance than return on investment. The supply of the track was at a pace that far outstripped the demand for railroad travel, investors lost out, and the steam whistle blew as what was latter coined the “Golden age of Bankruptcy” arrived at the station. America experienced the largest set of receiverships it had ever known, within four years alone, following 1894 companies that had built and operated 40,000 miles of railroad track went bankrupt. The mistake that the train companies made was focusing on building track and not selling travel tickets.
    Only compete on core business where a good return on investment is achievable.
    The similarity with the communications companies is striking and the lesson from history is clear. For your company to continue to trade without being consolidated, it needs to consistently grow profitable new revenues based on core business. Whilst the market remains flat and shows no signs of growth, the focus moves from generating new orders to managing the cash flows better so that the overall cash requirements are reduced.
  • 4. Bankruptcy: an organisation declared in law unable to pay outstanding debts.
    The Cash Flow Formula
    The Cash Flow Formula shown below was created to help you develop a systematic approach to understand and improve the cash flows within your business. The formula knits together a number of management techniques such as ratio analysis and Pareto.
    The formula can be entered into at any of the seven segments, especially if you already have identified areas of concern, or a segment dose not apply to your company, however, generally the formula should be tackled sequentially.
  • 5. Top tip: create a cash aware culture in your business
    The Cash Flow Formula cont.
    The 7 steps of the investigation are:
    This segment is used to flush out the common financial yardsticks used to compare peers in the sector and concentrate the business on the areas that will communicate a positive outlook. Achieving the perceived yardsticks will crystallise future investment.
    Cash Flow by Company
    This segment helps focus the group on it’s rising star: (see Matrix of cash Operations Module 3) the company that is expected to demonstrate the highest returns in the medium term. Where there is high growth potentially there is the greatest possibility of poor financial controls.
    Business Model
    This segment develops an understanding of the individual company’s business model and analyses the business performance. It challenges the business to instigate good practise and regularly question if the business model is still current and the strategy derived from that is still correct.
  • 6. The Cash Flow Formula cont.
    Internal Accounts
    This segment looks into the Internal Accounts. The Internal Accounts are graphed over a 4-month period and compared to the previous years results over the same period. This trend analysis highlights the areas where cash flow improvements are required.
    Product contribution
    This segment will determine which products have the greatest contribution to the company at an instant in time and can be used to focus future product developments and withdrawals. The highest contributing products will have the greatest impact on the management of the WCC.
    Cash Flow by Product/Service
    This segment allows detailed deconstruction and mapping of the WCC of each of the products to determine which provide the best use of cash within the business, it ensures that effective control of suppliers credit terms can be controlled and managed effectively.
    Credit control.
    This segment analyses when customers pay their bills so that irregularities can be identified before large debts are amassed. Understanding the key dates in the WCC for a product or service allows better use of the credit given by vendors and the debt owed by customers.
  • 7. Creating Cash Awareness
    If after reading through the 7 steps you are still wondering where you can jump-start the cash awareness within your business why not try the sales prevention department. Every company has a one just ask your sales people and they will be only too happy to point you in the right direction, beware they may even give names.
    I worked for a company that had the patent on the bulletproof business case acceptance criteria, where only 5 out of every 100 sales leads were turned into customers, and due to the shear volume of potential customers there was a 4-week backlog on business cased feasibilities studies. Once operations had completed an exhaustive feasibility study they could detail how the service would be delivered and predict the costs involved with an amazingly good accuracy.
    The finance department would then compare the predicted Sales revenue against the costs and decide whether they would make a good customer. Operations and Finance loved it, strangely the sales people and the customers didn’t, after waiting 4 weeks they may well have taken their business elsewhere.
    It cost the business on average £1000 to complete a feasibility study so for every £100,000 spent £95,000 was wasted, 95% of operations, finance and sales time was wasted on investigating leads that would never convert to customers. These leads would never bring cash in; and created a four weeks delay in getting cash in the door from good business.
  • 8. Creating Cash Awareness cont.
    My challenge was turning this around so that only a small amount of effort was wasted. The solution was to dissolve the sales prevention department by empowering the Sales people to take make the decision on whether a sales lead would make a good customer.
    By harnessing both the operational wisdom for the cost structure and the financial requirements for the customer acceptance criteria a Ready Reckoner Tool (RRT) was created that roughly estimated the feasibility cost, compared it to the projected value of the customer’s business, and provided a detailed business case breakdown. Suddenly, the 4-weeks wait disappeared as Sales people signed up customers on the first visit.
  • 9. Creating Cash Awareness cont.
    The Ready Reckoner Tool:
    • Sales people to instinctively know what a good lead looked
    • 10. Operations to focus on delivering customer services quicker and spend more time on getting the cost base down
    • 11. Finance to focus on getting the cash in from invoices
    • Opened Pandora’s box, and for the first time sales people began to see, understand and question the costs and the lead times incurred.
    • 12. Dissolved the Sales prevention department and created the most Cash aware company culture in the sector.
    The business was now running much more efficiently, it was true that it was carrying a higher level of risk due to the assumed cost base, but the savings in terms of cash and time created a reward well worth the risk.
  • 13. Cash in Strategy
    A clear “cash in” strategy plays an important role in a company’s success. In today’s turbulent competitive environment, your company more than ever needs a “cash in” strategy that specifies the kind of competitive advantage that it is seeking in the marketplace and articulates how the advantage is to be achieved.
    As the Global recession bites it is important to review your current business product or service and customers mix as a priority. It may be that your order book is still full making you feel insulated from the recession. When in fact what you are actually experiencing is the effect of customers who are progressing orders that were approved years in advance, and the current market condition may not take effect for months or years. The key question here is can your customers still afford to pay?
  • 14. AIR
    In preparing for the future your company needs to:
    Affect an action plan based on what products and or services are most likely to continue to be sold in a recessionary environment
    Initiate collaborative discussion with existing customers who are struggling.
    Review existing and target customers and set new credit limits and create risk bandings based on which companies are most likely to survive.
    Remember you cannot live without AIR.
    Affect a plan, Initiate Dialogue and Review Customers.
  • 15. Summary
    This course has provided you with the tools to look at the WCC within your company, recent market conditions have had a dramatic impact on the global markets, and as never before the lifeblood of the cash needs to pump through your businesses arteries.
    The global economy has started to contract and is unlikely to revert back to the heady days of the 1880’s or 1990’s, at least for a while. So, for a while it will be hard to raise a loan or equity capital, except for companies already generating free cash flow or those with a strong emphasis on cash control. So the key to surviving the global credit crunch is to look for cash in your Business, find it, handle it well and look for the golden opportunities it creates
  • 16. Quiz 1 of 2
    What is Bankruptcy?
    an organisation declared in law unable to pay outstanding debts.
    the state of being lacking in a particular quality or value.
    financial ruin.
    All of the above
    Why are the 7 steps of the Cash Flow Formula?
     Cash Flow by Company
     Business Model
     Internal Accounts
     Product contribution
     Cash Flow by Product/Service
     Credit control.
    All of the above
    Who will benefit from creating a cash aware culture in your business?
    The Employees
    The Company
    The Managing Director
    All of the above
  • 17. Quiz 2 of 2
    What is AIR?
    It is an aide-memoire for Affect a plan, Initiate Dialogue and Review Customers
    The substance necessary for breathing
    All of the above
    Why is a clear “Cash in” strategy important?
    It creates the vision
    It creates buy in from Investors
    It creates buy in from employees
    Helps employees focus on the implications of Cash.
    All of the above
    Where is a good place to start your hunt for Cash?
    Sales prevention department
    Credit Control
    Pre Sales
    Supply management
    All of the above.
  • 18. To contact the author: craig@craigscopy.com
    Finding Cash in your BusinessWays to find cash you didn’t know you had, and attract cash you didn’t now you needed.
    Here’s some other free resources you’ll enjoy.
    Podcast: http://itunes.apple.com/us/podcast/finding-cash-in-your-business/id347814983
    Blog: http://craigscopy.blogspot.com/
    Tweets: http://twitter.com/craigscopy
    Here’s the answers to the questions:
    1. 4. 8. 6. 5. 1.