Successful Cash Management Successful Cash Management For Your Business!For Your Business!

Presented byPresented byStrategic Growth Partners, LLCStrategic Growth Partners, LLC

ForFor

Successful Cash Management Successful Cash Management For Your Business!For Your Business!

Discussion AgendaDiscussion AgendaUnderstanding the Keys to good Cash Understanding the Keys to good Cash Flow ManagementFlow ManagementMaximizing Cash Flow in Your Maximizing Cash Flow in Your BusinessBusinessTips and Tools in Implementing a Tips and Tools in Implementing a Cash Flow Management Strategy Cash Flow Management Strategy

Understanding the Keys to good Understanding the Keys to good Cash Flow ManagementCash Flow Management

Cash flow refers to the Cash flow refers to the movement of movement of cash into or into or out of a business. out of a business. Measured by cash receipts Measured by cash receipts less cash outlays less cash outlays (expenses).(expenses).Accrual accounting different Accrual accounting different from cash accounting from cash accounting (accounts receivable, (accounts receivable, accounts payable, etc.) accounts payable, etc.)

Understanding the Keys to good Understanding the Keys to good Cash Flow ManagementCash Flow Management

What is Working Capital?What is Working Capital?Current Assets Current Assets −− Current LiabilitiesCurrent LiabilitiesCurrent Ratio is a metric that measures the amount of Current Ratio is a metric that measures the amount of current assets to current liabilitiescurrent assets to current liabilitiesRepresents Represents operating liquidity operating liquidity available to a business available to a business Positive working capital is required to ensure that a Positive working capital is required to ensure that a firm is able to continue its operations and satisfy firm is able to continue its operations and satisfy upcoming operational expenses and maturing shortupcoming operational expenses and maturing short--term debt. term debt.

Understanding the Keys to good Understanding the Keys to good Cash Flow ManagementCash Flow Management

What Affects Cash Flow and Working What Affects Cash Flow and Working Capital?Capital?

Accounts Receivable:Accounts Receivable: When AR When AR increases, you are using cash; when increases, you are using cash; when AR decreases you are producing cashAR decreases you are producing cash

Inventory:Inventory: When inventory When inventory increases, you are using cash; when increases, you are using cash; when inventory decreases you are producing inventory decreases you are producing cashcash

Accounts Payable:Accounts Payable: When AP goes When AP goes up, you are producing cash; when AP up, you are producing cash; when AP goes down, you are using cash.goes down, you are using cash.

Understanding the Keys to good Understanding the Keys to good Cash Flow ManagementCash Flow Management

The Cash Flow Statement The Cash Flow Statement –– The Holy Grail to good cash The Holy Grail to good cash flow managementflow management

Basic elements of a cash flow statementBasic elements of a cash flow statementStarting CashStarting CashCash InCash In--Flows:Flows:

Cash SalesCash SalesCollections on Accounts ReceivableCollections on Accounts ReceivableLoan ProceedsLoan Proceeds

Cash OutCash Out--Flows:Flows:Operating expenses paidOperating expenses paidPayments to vendors (accounts payable)Payments to vendors (accounts payable)Loan repayments (principal)Loan repayments (principal)

Ending CashEnding Cash

Understanding the Keys to good Cash Understanding the Keys to good Cash Flow ManagementFlow Management

Cash Flow Worksheet

Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 TotalBeginning Cash Balance 50,000 $50,000 $50,000 $50,000 $50,000 $50,000Cash Inflows (Income):

Accts. Rec. Collections 200,000 175,000 125,000 100,000 125,000 175,000 900,000Loan Proceeds 32,800 42,800 20,550 175 96,325Cash Sales 15,000 10,000 12,500 13,000 15,000 65,500Other:

00

Total Cash Inflows $215,000 $207,800 $177,800 $133,050 $138,175 $190,000 $1,061,825Available Cash Balance $265,000 $257,800 $227,800 $183,050 $188,175 $240,000Cash Outflows (Expenses):

Advertising 5,000 5,000 5,000 5,000 5,000 5,000 30,000Bank Service Charges 300 300 300 300 300 300 1,800Credit Card Fees 2,500 2,000 2,000 2,250 2,375 2,500 13,625Health Insurance 10,000 10,000 10,000 10,000 10,000 10,000 60,000Insurance 5,000 5,000 5,000 5,000 5,000 5,000 30,000Interest 2,500 2,500 2,500 2,500 2,500 2,500 15,000Inventory Purchases 75,000 20,000 20,000 25,000 30,000 35,000 205,000Miscellaneous 15,000 15,000 10,000 10,000 10,000 15,000 75,000Payroll 40,000 40,000 40,000 40,000 40,000 40,000 240,000Payroll Taxes 7,500 7,500 7,500 7,500 7,500 7,500 45,000Professional Fees 5,000 5,000 5,000 5,000 5,000 5,000 30,000Rent or Lease 15,000 15,000 15,000 15,000 15,000 15,000 90,000Subscriptions & Dues 1,000 1,000 1,000 1,000 1,000 1,000 6,000Supplies 2,000 2,000 2,000 2,000 2,000 2,000 12,000Taxes & Licenses 1,000 1,000 1,000 1,000 1,000 1,000 6,000Utilities & Telephone 1,500 1,500 1,500 1,500 1,500 1,500 9,000Other:

000

Subtotal $188,300 $132,800 $127,800 $133,050 $138,175 $148,300 $868,425Other Cash Out Flows:

Capital Purchases 50,000 50,000Loan Principal 26,700 25,000 41,700 93,400Owner's Draw 50,000 50,000Other:

0 Subtotal $26,700 $75,000 $50,000 $0 $0 $41,700 $193,400 Total Cash Outflows $215,000 $207,800 $177,800 $133,050 $138,175 $190,000 $1,061,825

Ending Cash Balance $50,000 $50,000 $50,000 $50,000 $50,000 $50,000

Maximizing Cash Flow in Your Maximizing Cash Flow in Your BusinessBusiness

Managing Accounts ReceivableManaging Accounts ReceivableEstablishing credit policies and limitsEstablishing credit policies and limitsInvoicingInvoicing-- timing and termstiming and termsManaging and monitoring your A/RManaging and monitoring your A/R

Open invoices reportsOpen invoices reportsA/R turnover metricsA/R turnover metrics

CollectionsCollectionsWrite offWrite off’’ss

Maximizing Cash Flow in Your Maximizing Cash Flow in Your BusinessBusiness

Managing Accounts PayableManaging Accounts PayableGetting the terms you needGetting the terms you need

A/P turnover metricsA/P turnover metrics

Taking discountsTaking discountsTaking inventory on consignmentTaking inventory on consignmentManaging inventoryManaging inventory

Just in time practicesJust in time practicesInventory requires healthy working capitalInventory requires healthy working capitalInventory on hand reports; inventory turnover metricsInventory on hand reports; inventory turnover metrics

Tips and Tools in Implementing a Tips and Tools in Implementing a Cash Flow Management StrategyCash Flow Management Strategy

Depository ServicesDepository ServicesDepositing funds via the internetDepositing funds via the internetReceiving payments via credit card and ACH Receiving payments via credit card and ACH debitdebitOnOn--line account services line account services

Balance and account activity informationBalance and account activity informationBill payments, timing to coordinate with available Bill payments, timing to coordinate with available cashcashFunds transfer between accounts (deposits and Funds transfer between accounts (deposits and loans)loans)

Tips and Tools in Implementing a Tips and Tools in Implementing a Cash Flow Management StrategyCash Flow Management Strategy

Credit Card ServicesCredit Card ServicesUsing to pay bills and obtain benefits of floatUsing to pay bills and obtain benefits of floatLook for card associated benefits (i.e. reward Look for card associated benefits (i.e. reward points, frequent flyer miles, etc.)points, frequent flyer miles, etc.)Manage use appropriately, paying off balance Manage use appropriately, paying off balance monthly to avoid interest charges and late monthly to avoid interest charges and late feefee’’ss

Tips for Managing a Cash Flow Tips for Managing a Cash Flow CrisisCrisis

Prepare/update cash flow projectionPrepare/update cash flow projectionDetermine cash short fall (timing and extent)Determine cash short fall (timing and extent)Managing cash inflows:Managing cash inflows:

Sell to clients who paySell to clients who payPrePre--bill/Job depositsbill/Job depositsInvoice for work more frequently/Discounts for quick paymentsInvoice for work more frequently/Discounts for quick paymentsCollect by credit card/ACH debits/remote deposit servicesCollect by credit card/ACH debits/remote deposit services

Managing cash outflows:Managing cash outflows:Extended terms with vendorsExtended terms with vendorsPay vendors on agreed terms, not beforehandPay vendors on agreed terms, not beforehandReview all expense itemsReview all expense items

Outside sources of cash:Outside sources of cash:Banks, leasing resources, factoringBanks, leasing resources, factoringFederal, State & Local Government resources (direct loans, SBA, Federal, State & Local Government resources (direct loans, SBA, economic development, etc.)economic development, etc.)Personal and family resources (home equity loan, credit cards, Personal and family resources (home equity loan, credit cards, retirement accounts)retirement accounts)

Successful Cash Management Successful Cash Management For Your Business!For Your Business!

Questions?

Successful Cash Management Successful Cash Management For Your Business!For Your Business!

Strategic Growth Partners is a joint venture between Donohue-Hart & Associates and Alliance Advisory Group. It was formed to provide businesses with access to professional and affordable strategic planning and execution advisory services. The professionals that make up Strategic Growth Partners have over one hundred years of combined experience in owning, operating and managing various business enterprises.

Successful Cash Management Successful Cash Management For Your Business!For Your Business!

To Contact Us for Further Information:To Contact Us for Further Information:Randy FarnumRandy Farnum410410--409409--02860286

randy@allianceadvisorygroup.netrandy@allianceadvisorygroup.net