Successful Cash Management

Cash management is ultimately about cash flow — and very few small and medium-sized businesses are awash in cash. Even successful, growing companies are vulnerable to cash flow problems as they deal with the working capital issues of an increasing employee base, growing accounts receivables and capital expenditures. Without best practices of cash management, including a clear picture as to prospective cash flow, companies run the risk of depleting the company coffers that lead to cash shortages.

For most companies cash management is the first critical step to master. Cash flow is the company’s life blood. When we talk to owners and presidents and ask what keeps them awake at night – the over whelming response is cash flow. Harvest CFO Consulting works with companies to develop and implement best practices to improve cash management.

Best Practices for Cash Management Include:

Daily Cash Report

Implement a daily cash report that reflects the daily activity of accounts receivables, cash receipts and cash disbursements.

Split timing of Vendor and Payroll Cash Needs

It is a very good practice to split the timing of vendor payments and other cash disbursement needs in such a way that you equalize the amount of cash that is disbursed from the company throughout the month. For example, if your payroll cycle is semi-monthly and averages $100,000 per pay period, and you have other vendor and debt commitments that average $300,000 per month, splitting the payables and debt obligations into targeted payment dates that are non-payroll weeks allows for a more balanced forecasting of cash needs. In this example, payroll on the 15th and last day of the month is $100,000, splitting vendor and debt obligations so that $150,000 is paid on the 8th and 22nd enables consistent forecasting of cash needs throughout the month.

13 Week Rolling Cash Report

Based on your company’s actual experience as to working capital turnover, including inventory needs, customer billing, contract and collection terms (and actual collection experience), payroll cash needs, bank and other debt payments and vendor accounts payable payment history, Harvest CFO Consulting builds with you a rolling 13 week cash forecast model. This model is critically important to clearly understand the sources, uses and timing of cash on a prospective basis. This forecast significantly reduces surprises, enables action to improve future cash position via managing customer AR to get the money in the door, negotiating vendor terms, cost restructuring and utilization of bank line of credit. This tool also enables business leaders and financial management to determine their company’s effectiveness in cash management.

Cash Flow Statements

Common practice is to produce an Income Statement and a Balance Sheet every month to monitor the financial performance of their company. An often over looked but vital statement is the Statement of Cash Flow. Statement of Cash Flow will answer the common question “we are making money, but where is it going”. Harvest CFO Consulting will assist you to prepare and understand this vital management tool. Your financial budgets and forecasts should always include a Statement of Cash Flow. This statement enables you to understand your expected cash generated by operations and clearly shows gaps as to cash needs including to invest in the business. This enables you to determine your needs from banking and other sources.

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