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Strategies To Navigate Through A Financial Storm
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Strategies To Navigate Through A Financial Storm

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A financial storm comes when factors beyond our control, create a crisis that we must respond to in order to preserve and protect our agency or program. Understand what types of financial storms might …

A financial storm comes when factors beyond our control, create a crisis that we must respond to in order to preserve and protect our agency or program. Understand what types of financial storms might occur, identify financial risks and how to minimize them, how to develop contingency plans to respond to the potential for them, the role of reserves and how to determine what is necessary, understand the difference between cash flow management and cash flow forecasting.

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  • 1. Strategies to Navigate Through a Financial Storm Presented by: Scott Haumersen, CPA , Managing Partner
  • 2. What is a Financial Storm?• A financial storm comes when factors beyond our control, create a crisis that we must respond to in order to preserve and protect our agency or program. It can come in many forms!
  • 3. Objectives of Today• Understand what types of financial storms might occur• Identify financial risks and how to minimize them• How to develop contingency plans to respond to the potential for them• The role of reserves and how to determine what is necessary• Understanding the difference between cash flow management and cash flow forecasting
  • 4. Financial Storms• Decline in funding – 2008 & Beyond - The Perfect Storm• Changes in cash flow• Unanticipated costs and liabilities• Rising costs• Lack of clear plans and financial literacy• Fraud• Natural disasters
  • 5. Reducing Financial Risk• Who is watching the ship?• What should the systems of monitoring be?• What is your risk tolerance?• Review checklist
  • 6. Contingency Plans• Enterprise Risk Management – Risk assessment – Financial forecasting – Disaster recovery plans• Reputational issues and planning – Engaging your stakeholders – Using public relations efforts – Donor & lender support
  • 7. Role of Reserves• Determine your current reserve levels – What does your Balance Sheet say?• Set benchmarks and targets for future – What are your reserves? – What are adequate reserves? – How do you create them?
  • 8. Role of Reserves• Types of Reserves – Operating Reserve – Capital Replacement Reserve – Opportunity Fund Reserve – Permanent Reserve
  • 9. Cash Flow Management & Forecasts• Cash Flow Management – What is cash flow management? – Advantages of cash flow – How to improve cash flow – What to do with surplus and deficits• Cash Forecasts – What is a cash forecast? – Why do you need a forecast? – What are your forecast period options? – What must you have in place for a successful cash forecast? – How should you organize your forecast?
  • 10. Cash Flow Management• Cash Flow is the flow of money in and out of your business - not the bottom line• Objective of cash flow management is to forecast and manage timing of cash flows to assure cash flow availability to accomplish your organization’s mission
  • 11. Cash Flow Management• Advantages of Cash Flow – Pay off long-term debts – Expand facilities or programs – Invest for the future – Protect and strengthen organization from future short- falls and economic downturns
  • 12. Cash Flow ManagementHow to Improve Cash Flow• Determine your working capital needs – How much is “just enough” – Current ratio• Speed up collections of receipts (7 Ways)• Slow down payments (4 Ways)• Invest excess cash wisely – Where should you “stash” your cash?
  • 13. Cash Flow Management7 Ways to Speed Up Collections• Prepare invoices & grant billings ASAP• Negotiate for advance funds• Use credit cards for Program Service Revenue• Utilize EFT where possible• Consider using Lock Boxes• Reduce amount of time checks are held before deposits• Credit policies
  • 14. Cash Flow Management4 Ways to Slow Down Payments• Pay monthly or semi-monthly• Use credit cards• Change payroll periods• Negotiate terms with creditors
  • 15. Cash ForecastWhat is a Cash Forecast?• A cash forecast (budget) is a presentation of cash results based upon assumptions about conditions and actions expected to exist or occur during the forecast period – The time period (forecast period) must be defined – Assumptions need to be made – Forecast should be in written form – The forecast needs to be monitored and reacted to
  • 16. Cash ForecastWhy Do You Need a Cash Forecast?• You need a forecast to ensure that you do not spend more cash than you have or expect to have. – To ensure that the cash balance always remains above zero (or desired minimum level). – To predict when cash levels will fall to require the need for additional cash or borrowing. – To predict when cash levels will rise sufficiently to facilitate investment of idle balances.
  • 17. Cash Forecast• Plan out on paper to see what the cash effect will be before you commit to a course of action.• Results that come from regular cash flow forecasting: – Anticipate Short-Term Financing Needs – Planning Debt Reductions. – Planning Capital Expenditures (Equipment)
  • 18. Cash Forecast• Results (continued) – Increasing Investment Income. – Planning Non-Capital Purchases – Project Seasonality Trends• Very Important!! – Pay Your Payroll Taxes
  • 19. Final Thoughts• So you are facing a financial storm with no contingency plans- what’s next?• Do not go it alone- bring your Board into it right away• Consider Alternatives – Collaborations and mergers – Financial bailouts – Liquidations
  • 20. Thank You!! Scott Haumersen, CPA, Managing Partner Wegner CPAs 2110 Luann Lane Madison, WI 53713 608.442.1925 scott.haumersen@wegnercpas.com