Successful Cash Management For Your Business

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Successful Cash Management For Your Business

  1. 1. Successful Cash Management For Your Business! Presented by Strategic Growth Partners, LLC For
  2. 2. Successful Cash Management For Your Business! Discussion Agenda Understanding the Keys to good Cash Flow Management Maximizing Cash Flow in Your Business Tips and Tools in Implementing a Cash Flow Management Strategy
  3. 3. Understanding the Keys to good Cash Flow Management Cash flow refers to the movement of cash into or out of a business. Measured by cash receipts less cash outlays (expenses). Accrual accounting different from cash accounting (accounts receivable, accounts payable, etc.)
  4. 4. Understanding the Keys to good Cash Flow Management What is Working Capital? Current Assets − Current Liabilities Current Ratio is a metric that measures the amount of current assets to current liabilities Represents operating liquidity available to a business Positive working capital is required to ensure that a firm is able to continue its operations and satisfy upcoming operational expenses and maturing short- term debt.
  5. 5. Understanding the Keys to good Cash Flow Management What Affects Cash Flow and Working Capital? Accounts Receivable: When AR increases, you are using cash; when AR decreases you are producing cash Inventory: When inventory increases, you are using cash; when inventory decreases you are producing cash Accounts Payable: When AP goes up, you are producing cash; when AP goes down, you are using cash.
  6. 6. Understanding the Keys to good Cash Flow Management The Cash Flow Statement – The Holy Grail to good cash flow management Basic elements of a cash flow statement Starting Cash Cash In-Flows: Cash Sales Collections on Accounts Receivable Loan Proceeds Cash Out-Flows: Operating expenses paid Payments to vendors (accounts payable) Loan repayments (principal) Ending Cash
  7. 7. Understanding the Keys to good Cash Flow Management Cash Flow Worksheet Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Total Beginning Cash Balance 50,000 $50,000 $50,000 $50,000 $50,000 $50,000 Cash Inflow (Incom s e): Accts. Rec. Collections 200,000 175,000 125,000 100,000 125,000 175,000 900,000 Loan Proceeds 32,800 42,800 20,550 175 96,325 Cash Sales 15,000 10,000 12,500 13,000 15,000 65,500 Other: 0 0 Total Cash Inflow s $215,000 $207,800 $177,800 $133,050 $138,175 $190,000 $1,061,825 Available Cash Balance $265,000 $257,800 $227,800 $183,050 $188,175 $240,000 Cash Outflow (Expenses): s A dvertising 5,000 5,000 5,000 5,000 5,000 5,000 30,000 Bank Service Charges 300 300 300 300 300 300 1,800 Credit Card Fees 2,500 2,000 2,000 2,250 2,375 2,500 13,625 H ealth Insurance 10,000 10,000 10,000 10,000 10,000 10,000 60,000 Insurance 5,000 5,000 5,000 5,000 5,000 5,000 30,000 Interest 2,500 2,500 2,500 2,500 2,500 2,500 15,000 Inventory Purchases 75,000 20,000 20,000 25,000 30,000 35,000 205,000 M iscellaneous 15,000 15,000 10,000 10,000 10,000 15,000 75,000 Payroll 40,000 40,000 40,000 40,000 40,000 40,000 240,000 Payroll Taxes 7,500 7,500 7,500 7,500 7,500 7,500 45,000 Professional Fees 5,000 5,000 5,000 5,000 5,000 5,000 30,000 Rent or Lease 15,000 15,000 15,000 15,000 15,000 15,000 90,000 Subscriptions & Dues 1,000 1,000 1,000 1,000 1,000 1,000 6,000 Supplies 2,000 2,000 2,000 2,000 2,000 2,000 12,000 Taxes & Licenses 1,000 1,000 1,000 1,000 1,000 1,000 6,000 U tilities & Telephone 1,500 1,500 1,500 1,500 1,500 1,500 9,000 Other: 0 0 0 Subtotal $188,300 $132,800 $127,800 $133,050 $138,175 $148,300 $868,425 Other Cash Out Flow s: Capital Purchases 50,000 50,000 Loan Principal 26,700 25,000 41,700 93,400 Owner's Draw 50,000 50,000 Other: 0 Subtotal $26,700 $75,000 $50,000 $0 $0 $41,700 $193,400 Total Cash Outflow $215,000 s $207,800 $177,800 $133,050 $138,175 $190,000 $1,061,825 Ending Cash Balance $50,000 $50,000 $50,000 $50,000 $50,000 $50,000
  8. 8. Maximizing Cash Flow in Your Business Managing Accounts Receivable Establishing credit policies and limits Invoicing- timing and terms Managing and monitoring your A/R Open invoices reports A/R turnover metrics Collections Write off’s
  9. 9. Maximizing Cash Flow in Your Business Managing Accounts Payable Getting the terms you need A/P turnover metrics Taking discounts Taking inventory on consignment Managing inventory Just in time practices Inventory requires healthy working capital Inventory on hand reports; inventory turnover metrics
  10. 10. Tips and Tools in Implementing a Cash Flow Management Strategy Depository Services Depositing funds via the internet Receiving payments via credit card and ACH debit On-line account services Balance and account activity information Bill payments, timing to coordinate with available cash Funds transfer between accounts (deposits and loans)
  11. 11. Tips and Tools in Implementing a Cash Flow Management Strategy Credit Card Services Using to pay bills and obtain benefits of float Look for card associated benefits (i.e. reward points, frequent flyer miles, etc.) Manage use appropriately, paying off balance monthly to avoid interest charges and late fee’s
  12. 12. Tips for Managing a Cash Flow Crisis Prepare/update cash flow projection Determine cash short fall (timing and extent) Managing cash inflows: Sell to clients who pay Pre-bill/Job deposits Invoice for work more frequently/Discounts for quick payments Collect by credit card/ACH debits/remote deposit services Managing cash outflows: Extended terms with vendors Pay vendors on agreed terms, not beforehand Review all expense items Outside sources of cash: Banks, leasing resources, factoring Federal, State & Local Government resources (direct loans, SBA, economic development, etc.) Personal and family resources (home equity loan, credit cards, retirement accounts)
  13. 13. Successful Cash Management For Your Business! Questions?
  14. 14. Successful Cash Management For Your Business! Strategic Growth Partners is a joint venture between Donohue-Hart & Associates and Alliance Advisory Group. It was formed to provide businesses with access to professional and affordable strategic planning and execution advisory services. The professionals that make up Strategic Growth Partners have over one hundred years of combined experience in owning, operating and managing various business enterprises.
  15. 15. Successful Cash Management For Your Business! To Contact Us for Further Information: Randy Farnum 410-409-0286 randy@allianceadvisorygroup.net

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