Manage Your Cash Flow EVERY Day

John Schimmoller, CPA

Certified Marketing Consultants, Ltd.

January 12, 2015

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Managing Cash Flow

The following material presented by Certified Marketing Consultants, Ltd. is based upon historical data collected by CMC, Ltd. The opinions and conclusions expressed during this presentation are the unbiased and professional opinions of CMC, Ltd. and are being presented for the purpose of discussion only.

Manage Your Cash Flow EVERY Day

If you don’t manage cash flow your business will fail.

The faster you grow, the sooner your business will fail.

What does “managing cash flow” mean?

– To think about?

– To be aware of?

– To watch?

Managing Cash Flow

Managing is “to direct, to exert authority, discipline or persuasion.”

MANAGING CASH FLOW IS NOT A PASSIVE ACTIVITY!

Managing Cash Flow

What is Cash Flow?

When does Cash Flow?

Where does Cash Flow?

How does Cash Flow?

Managing Cash Flow

Cash flow is the difference between what you get paid by customers and

what you pay to vendors, employees, utility companies, Uncle Sam, etc.

Managing Cash Flow

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When Does Cash Flow?

Cash Flows EVERY DAY. So that means you must manage Cash Flow EVERY DAY.

• Deposit customer checks daily,

• Bill customers the same day you get billed,

• Collect accounts receivable daily,

• Review daily cash disbursements,

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Where Does Cash Flow? Into your bank from your customers.

Out of your bank to: • Landlord

• Employees

• Salespeople

• Vendors

• Phone company

• Electric company

• Government

• Freight company

• Office supply company

• Computer store

• Insurance company

• Post office

• Contract programmers

• Yourself?

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How Does Cash Flow?

• Is it predictable?

• Is it measurable?

• Is it random?

• Is it arbitrary?

• Can it be influenced?

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Managing Cash Flow

“The sale isn’t over until the

cash is in the bank.”

It doesn’t matter if you’re the best salesperson in the world. You will experience hardship if you don’t manage cash flow. We have seen MANY sad situations where great sales organizations have failed because

THEY DIDN’T MANAGE CASH FLOW!

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Managing Cash Flow

There are 4 steps to intentionally managing cash flow:

1. Plan

2. Involve

3. Monitor

4. Adjust

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Planning Cash Flow

1. Compile an annual budget with monthly cash projections,

2. Base the budget on prior year experience adjusted for new facts,

3. Consider AR collection & AP payment cycles,

4. Be conservative,

5. Identify expenses that can be adjusted,

6. Insert capital expenditures where needed & available,

7. Budget next year month when current month is over.

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Annual Budget January February March…… Total year Last Year

Sales $10,000 $50,000 $100,000 $1,000,000 $800,000

Cost of Sales $ 6,500 $32,500 $ 65,000 $ 650,000 $520,000

Gross Profit $ 3,500 $17,500 $ 35,000 $ 350,000 $280,000

Commissions $ 1,750 $ 8,750 $ 17,500 $ 175,000 $140,000

Wages $10,000 $10,000 $ 10,000 $ 120,000 $100,000

Payroll Taxes $ 800 $ 800 $ 800 $ 9,600 $ 8,000

Advertising $ 200 $ 0 $ 300 $ 1,000 $ 1,000

Office Expenses $ 200 $ 500 $ 300 $ 2,000 $ 1,700

Rent $ 1,000 $ 1,000 $ 1,000 $ 12,000 $ 12,000

Utilities $ 500 $ 500 $ 300 $ 6,000 $ 5,700

Insurance $ 5,000 $ 0 $ 0 $ 5,000 $ 4,600

Miscellaneous $ 100 $ 100 $ 100 $ 1,200 $ 1,000

Net Income (Loss) ($16,050) ($ 4,150) $ 4,700 $ 18,200 $ 6,000

Change in AR $90,000 ($40,000) ($ 50,000) ($ 20,000) $ 10,000

Change in AP ($58,500) $26,000 $ 32,500 $ 13,000 ($ 6,500)

Capital Expenditures $ 0 $ 0 ($ 3,000) ($ 10,000) ($ 2,000)

Net Cash Flow $15,450 ($18,150) ($ 15,800) $ 1,200 $ 7,500

Bank Funds ($15,000) ($18,000) $ 16,000 ($ 1,200) ($ 7,500)

Beginning Cash Balance $ 1,000 $ 1,450 $ 1,300 $ 1,000 $ 1,000

Ending Cash Balance $ 1,450 $ 1,300 $ 1,500 $ 1,000 $ 1,000

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Involve

There are many people who can help you manage your cash flow:

– Employees

– Salespeople

– Customers

– Suppliers

– IT providers

– Post office

– Bank

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Monitor

Use management reports:

Cash balance daily.

Aged unbilled orders with expected gross profits weekly.

Aged accounts receivable weekly.

Aged accounts payable weekly.

Actual income statement / cash flow monthly.

Balance sheet monthly.

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Adjust

1. Compare actual cash flow to budgeted cash flow,

2. Change efforts to better achieve targets,

3. Change capital expenditure plans if necessary,

4. Adjust operating expenses as needed,

5. Consider accelerating spending if excess cash is available,

6. Tax planning.

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Cash Flow Tools

• Cash or credit card charge with order,

• Pay once a week or twice a month & communicate your payment plan to vendors,

• Take trade discounts,

• Negotiate with suppliers,

• Credit policy,

• Consistent collection efforts with customers,

• Have suppliers bill large orders direct,

• Have suppliers e-mail or fax invoices immediately upon shipment of orders,

• Bill your customers immediately via e-mail or fax,

• Credit hold.

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Cash Flow Traps

• Paying vendors with company or personal credit cards,

• Owning customer inventory,

• Buying decorating equipment,

• Accepting credit card payments on normal terms,

• Low margins,

• Huge orders,

• Importing,

• Financing negative cash flow with bank debt,

• Low owner’s compensation.

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Manage Your Cash Flow EVERY Day

It requires cash to grow your business to finance higher receivables, additional personnel, bigger facility, new computer hardware & software, etc.

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Manage Your Cash Flow EVERY Day

You need to have strong positive cash flow to grow your business.

If your cash flow is negative or marginal, your business will surely fail if you successfully grow it.

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Manage Your Cash Flow

EVERY Day

Questions?

Thanks and Good Luck!