3. Why Cash Flow?
Controlling Your Cash Before It Controls You
q In an ever-changing market, be ready to respond
q You have choices
q Reactive Management
q Changes come from the outside, the business passively
responds
q Proactive Management
q The business anticipate problems, and forms strategies
4. What Is Cash Flow?
Flows of cash:
q In-flow
q New investment
q New debt
q Sale of fixed assets
q Operating profits
q Out-flow
q Income statement expenses
q Principal portion of loans
5. What Is Cash Flow?
Five severe warning signs of cash flow:
1. Decreased liquidity
2. Overtrading
3. Over-reliance
4. Dropped discounts
5. Slow collections
If you suffer from one or more of these, you
have a cash flow problem!
6. Cash Flow Analysis?
Objective – profitable business
planning & operation
q If cash in-flows exceed cash
out-flows, your business can
continue
q If cash outflows exceed cash
inflows, your business grinds
to a halt
7. Cash Flow: The Eight Steps
1. List cash in-flows
2. List cash out-flows
3. Identify when cash flows in or out
4. Examine timing: cash in-flows minus cash out-flows
5. Identify major consequences of cash as it currently
flows
6. Show constraints: cash in-flows and out-flows that
cannot be changed
7. Identify in-flows and out-flows that can be changed or
rescheduled
8. Establish a plan for positive cash flow
8. Step 1: List Cash In-flows
q Focus on operations as your main source of cash
q Timing is everything
Timing and operations go together
9. Cash Flow Analysis
Cash
Purchases
Inventories
Sales
Receivables
The Cash Flow Cycle
Notice the direction of the arrow. This is how cash flow can be a problem.
10. Step 2: List Cash Out-flows (Uses)
q Start with your cash journal and checkbook
q Where is the cash going?
q In-flows are a bit faster than out-flows, but they must
balance
q Again, timing is everything!
q Maintain an accounting system –
q Make sure your accountant works for and with you
11. Step 3: Identify When Cash Flows In or Out
q Calendar: useful tool
q List by date major cash in-flows and out-flows
q List fixed out-flows that have fixed dates
q List cash in-flows by date
Objective – Identify your business cycle and balance in-
flows and out-flows to allow growth
12. Step 4: Examine Timing: Cash In-flows Minus Out-flows
q Know your business rhythm
q Know your business cycle
q Are you in phase or out
q Look for industry data
q Try your trade association
q Don’t forget the US Small Business Administration (SBA)
13. Step 4: Examine Timing: Cash In-flows Minus Out-flows
Business Growth Patterns
14. Step 4: Examine Timing: Cash In-flows Minus Out-flows
Business Growth Patterns
15. Step 5: Identifying The Major Consequences Of Cash
As It Currently Flows
q Plan on payments being slower than you expect
q Learn your own cash flow patters
q They will become the foundation for your plan
q Can you really afford to offer credit?
q Leave credit decisions to professionals
16. Step 6: Show Constraints: In-flows or Out-flows That
Cannot Be Changed
q Which payment schedules can be changed – and which
cannot?
q List inflexible out-flows; plan around them
q Cash in-flows – not all can be influenced
q Identify those that create snags and deal with them on a
one-by-one basis
17. Step 7: Identify In-flows and Out-flows Which Can Be
Changed or Rescheduled
q Delayed payments are one way to improve cash flow
q Negotiate with your creditors
q They may be more flexible than you might guess
q It’s a balance and can be accomplished
q Careful planning
18. Step 8: Establish A Plan For Positive Cash Flow
q Go back to your calendar in Step 3 and provide
more detail
q Indicate cash flow items that cannot be changed
q List anticipated cash in-flows allowing a margin
of safety
q Allocate payment dates to suit your business
needs
q Identify periods of negative cash flow and how
to subsidize
