Cash management

Cash management can be the most critical function in any business. Almost every business has at some time encountered cash flow difficulties – even very profitable companies.

Managing the start-up years is often the most difficult time, since revenues tend to be less predictable than in later years and many new small/mid-sized businesses are not adequately capitalized. High growth periods can also put tremendous pressure on a company’s cash position, when cash outflow on new equipment, increased operating costs or higher inventories always tends to occur earlier than the cash inflow from increased revenues. Of course, times of economic downturn can create a new set of challenges.

Timing is always a critical issue in cash management. As with so many business issues, having advanced warning of a potential problem provides an opportunity to find ways of dealing with the situation, and managing the timing of certain activities or transactions.

An up-to-date cash forecast is the most effective way of ensuring that you get that advanced warning. Of course, having cash reserves or an available line of credit to draw on is the ideal solution when the inevitable gaps in timing between cash inflows and outflows occur, but arranging for a credit facility is not always easy – especially if it’s left too late and the problem is already occurring.

Forecasting cash flow, in concept, is straightforward. In practice, setting up an effective forecasting system can be complicated: many factors can impact cash flow and the system needs to be capable of calculating point-in-time balances, especially when the business is operating in a tight cash environment. This is unlike forecasting operating results, where monthly forecasts are often more than adequate. A cash forecasting system also needs to be reasonably easy to update, so that it can be revised as often as needed, especially during critical periods.

BW&A can assist you in a number of ways. First, we can provide advice on managing the key areas of your business that influence your cash flow trends – such as your accounts receivable, customer progress payments, accounts payable and payroll – and how best to handle capital equipment purchases and long-term expenditures so that they do not deplete your day-to-day working capital.

Secondly, we can help you set up a forecasting process by designing a system that recognizes the key factors that affect cash flow in your business. Generally, we find a spreadsheet-based system is the most effective, since off-the-shelf forecasting systems rarely provide the detailed functionality that is needed. In addition, we will show you how best to estimate the key numbers that have the most effect on the overall results of your forecasts.

We can also undertake a review of your financial position, including your recent profitability and cash flow trends, to assess whether there are any financing options that might assist your overall cash position. BW&A is experienced in preparing financing proposals and loan applications and can assist you in that process if needed.

If you would like to learn more about how we can help you with your cash management challenges, please contact us to arrange a no-obligation discussion.