An investor approached me last week and asked me if the second round of equity that a manufacturing company was raising, given the current uneven economic environment was enough? Since the adequacy of CASH FLOW is always a pertinent question to every business owner it is a timely topic.
As any business owner knows, managing cash flow is like juggling a number of balls and making sure that one of them doesn’t hit the floor, creating a cash crisis. Here are some ideas that may help you deal more effectively with the “cash” question.
Having sufficient cash flow is a function of managing these variables:
As any business owner knows, managing cash flow is like juggling a number of balls and making sure that one of them doesn’t hit the floor, creating a cash crisis. Here are some ideas that may help you deal more effectively with the “cash” question.
Having sufficient cash flow is a function of managing these variables:
- Revenue
- Profitability
- Accounts receivable and inventory levels
- Accounts payable and line of credit availability and
- Amount of principal debt service obligations
When revenue dips, it reduces the borrowing base (available cash) and the collection of future accounts receivable. When a company doesn’t operate profitability, those losses suck money out of the company. When accounts receivable get strung-out, cash coming into the company slows. When inventory growth exceeds revenue growth, even on a monthly basis; that growth difference will cause cash shortages, (paying for inventory that cannot be absorbed with revenue growth). When the trade (accounts payable) starts pushing for payments and the line of credit is fully extended, cash flow problems start to compound. And, the level of monthly debt service the company is funding can have an negative impact on cash flow – the more debt and the higher the payments, the more pressure that puts on free available cash flow.
Solution. Here are 5 pointers you can use to make sure you have adequate cash flow to survive this economic slump:
Solution. Here are 5 pointers you can use to make sure you have adequate cash flow to survive this economic slump:
- Have a cash flow plan that you update weekly defining all weekly sources and uses of funds – adjust “uses of funds” if cash isn’t positive at the end of the week,
- Make sure that invoices are billed weekly if not daily,
- Start calling customers who are 5 days past due and make sure there is no problem with the invoice and ask when the invoice will be paid. Follow up quickly if promises for payment are broken,
- Talk to your lender about your situation and make sure you have exhausted all the ways your lender can help you.
- Be consistent and persistent
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=70789ac5-ffd3-48f6-9c39-ed7567e62d7e)
This entry was posted
on Tuesday, February 10th, 2009 at 6:56 am and is filed under Business Financing, Cash flow.
You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.
Hi! I like your srticle and I would like very much to read some more information on this issue. Will you post some more?
We will be posting on our blog 3 times a week. Many of our posts will be in regards to financial issues, such as cash flow, because that is what we specialize in. Thanks for the comment!