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Is it all about the Economy or Cash Flow?

As I listen to all the media talk about the upcoming election being “all about the economy” it reminds me that in business it is “all about the cash flow”. In this economy whether it is a technology start-up, service business, a growth company or a small manufacturer, every business owner is concerned about his or hers cash level. Do I have enough? How can I get more? Yes, sales growth and market share are important, and obviously profitability is critical, but that old cliché is still so very true “CASH IS KING”.
I have worked with numerous companies in the Brandywine Valley area as an “as needed CFO” over the last five years and what amazes me most is how many companies do not know what their cash balance is at any given time (no the bank balance is not the same thing as the cash book balance). Furthermore, they do not know what their cash needs are expected to be over the next 3 months. Many have a sales target or goal and maybe an operating plan but very few have a cash flow plan.
Each month after reviewing and closing out the month, at a minimum the company (CFO) should be updating the companies expected cash inflows and outflows for the next 3 to 6 months. What receivables to they expect to collect, what new sales are forecasted, what payables have to be paid and what other liabilities or loans are due. Furthermore, the CFO should develop a strategy for any projected cash “gaps” over the coming months. Things like getting or expanding a line of credit, contacting vendors for extended payment terms, accelerating receivables through discounts, selling off slow moving inventory. Because unlike the government, a business owner cannot just print more money to pay its bills. When the Company’s cash is gone the business is gone.

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