Some thoughts re managing your cash resources better

1. CASHFLOW MANAGEMENT
Presented By
MICHAEL CORNER
www.wickedconsulting.com.au

2. CASHFLOW MANAGEMENT
CONTENTS OF WORKSHOP
• Introduction
• Outcomes of workshop
• The cash cycle
• Timing
• Budgeting
• Financing & types of credit
• Processes & policies
• Managing Debtors
• Managing Creditors
• Reporting
• Cashflow warning signs
• Improvement strategies
www.wickedconsulting.com.au

3. CASHFLOW MANAGEMENT
INTRODUCTION
The term “cash is the lifeblood of any business” is a saying that will never change. For whatever
we sell or how good our products and services are if people don’t pay for them and in a timely
fashion you will go broke.
Conversely it’s just not good enough to know when money is coming in we also need to know
when money needs to go out.
With business changing constantly you need to have the knowledge and take active control of
your cashflow cycle if you wish to remain in business.
www.wickedconsulting.com.au

4. CASHFLOW MANAGEMENT
OUTCOMES OF WORKSHOP
The outcomes from this workshop are to help provide your organisation with the necessary
understanding to be proactive in monitoring the cashflows and forecasting within your business
that will make sense, can be viewed and acted upon when necessary and provide the stable
foundation from which to grow.
Some of the key factors to be explored include
• Debtors & creditors
• How to determine if cashflow is positive
• Warning signs
• How to forecast into the future
www.wickedconsulting.com.au

5. CASHFLOW MANAGEMENT
THE CASH CYCLE
Every organisation that is in business has a cash flow cycle. A cash flow cycle is what it takes
from the original purchase of raw goods or services to go through the system and receive cash
from your customer.
A simple diagram on the next page shows a typical cash cycle.
The best way to help organisations to take greater control of their cashflow is to firstly map out
the stages to analyse if there is a better way of getting cash in faster and a better way to make
the system more efficient.
www.wickedconsulting.com.au

6. CASHFLOW MANAGEMENT
THE CASH CYCLE
PURCHASE OF RAW MATERIALS
PAYMENTS OF WAGES & OFFICE EXPENSES
PAYMENT OF RAW MATERIALS
PRODUCT BUILT
SALE MADE CUSTOMER INVOICE
CUSTOMER PAYS
www.wickedconsulting.com.au

7. CASHFLOW MANAGEMENT
TIMING
The term timing is everything rings very true with regard to managing business cashflows. A
critical part of this is knowing when money is coming in and when creditors need to be paid.
some useful points of reference to think about.
• Progress income payments from client
• Normal monthly payments rent, wages, office expenses, phones
• Up front payments from clients
• Credit terms bought back to new level
• Power of customers to withhold payments
• Types of suppliers
www.wickedconsulting.com.au

8. CASHFLOW MANAGEMENT
BUDGETING
Cash flow budgeting is one of the most important aspects of your businesses long term
success.
If this aspect is not managed properly you will generally run out of cash. If this happens you can
go broke very quickly. You have a much better chance of survival if you can forecast your cash
needs in advance.
A typical budget forecasts the incomes and outgoings on a monthly basis. This can even be
broken down further and monitor the receipts and payments on a weekly or daily basis.
The main purpose of this is to calculate if you will have enough money coming in compared to
what is going out. This enables you to predict whether you will be able to grow and add
resources as well as times when extra cash will be needed to support the business.
So how do I do this ?
www.wickedconsulting.com.au

9. CASHFLOW MANAGEMENT
BUDGETING
The easiest way to do this is to break it down into smaller bits.
Step 1 Prepare a sales forecast.
This is generally the hardest part because there is uncertainty in what sales are to be made. A
good way of doing this is to look at last years sales and use this as a guide with understanding
of
potential outside factors that could influence the figures.
Step 2 Project your inflows
Utilise receivables reports for information as well as your payment terms.
Step 3 Project your outflows
Utilise payables reports for information as well as your creditors terms.
Step 4 Put it together
See how it looks and manipulate as warranted. Look for impending gaps in income / expenses
www.wickedconsulting.com.au

10. CASHFLOW MANAGEMENT
BUDGETING
When undertaking the preparation of cashflow budgets there are some important factors to
consider, that may not give you the best information to make decisions with.
• Do not overestimate your sales forecasts
• Being overly optimistic in your general assumptions
• Spending to much time analysing figures constantly and missing the big picture
• Ignoring history of creditors and debtors
• Underestimating costs across the whole organisation
www.wickedconsulting.com.au

11. CASHFLOW MANAGEMENT
FINANCING AND OTHER FORMS OF CREDIT
With every business during their lives whether it be in the startup stages or for more mature
organisations their may be the need to access finance at some stage to grow, smooth out cash
Flow ups and downs, move into new markets or commercialise new ideas.
As business is constantly changing we need to adapt our situations sometimes very quickly.
This
may require a particular type of funding short or long term and an opportunity may be missed if
we are not able to capitalise quickly and efficiently.
Being able to know what people look for in accessing your funding applications and knowing if
We really know what amount of funding we require and how it will be best utilised in helping our
organisation to grow.
www.wickedconsulting.com.au

12. CASHFLOW MANAGEMENT
FINANCING AND OTHER FORMS OF CREDIT
When looking at accessing some extra funding some questions need to be asked :
• Why do I need the funding ?
• What type do I need ?
• Types of funding avenues ?
In being able to access these areas dependent on what your needs are, there are a few
common
areas that also will need to be understood before approaching anyone for finance.
• When is it needed ?
• How much is needed ?
• Whether it is profitable / sensible to access funding
www.wickedconsulting.com.au

13. CASHFLOW MANAGEMENT
PROCESSES AND POLICIES
Every organisation has their own processes of controlling their cash.
Here are some common questions to ask
• What are the credit terms ?
• Are their any terms and conditions with projects ?
• Do people pay by cheque or direct debit ?
• Are there certain debtors with their own payment terms ?
• Are there creditors who require applications to provide credit to you ?
• Is your Petty Cash reconciled and kept safe ?
• Do you have a banking procedure ?
• How long do you keep money on the premises before banking ?
• Who has control over the cash in your business ?
• Are 2 cheque signatories required ?
www.wickedconsulting.com.au

14. CASHFLOW MANAGEMENT
MANAGING DEBTORS
Being able to manage your debtors correctly is a key strategy to help you control your cashflow.
If you are not able to do this well you may experience an incidence of bad payers and bad
debts.
Some practical hints include :
• Proper invoicing practices (clear and quick )
• Penalties for overdue accounts
• Customer checks
• Give other payment options eg credit cards or continual payments
• Give credit limits to certain customers
• Do more business with your larger / better payers
• Don’t feel guilty about asking for money it’s not personal
• Keep on top of outstanding customers payments
www.wickedconsulting.com.au

15. CASHFLOW MANAGEMENT
MANAGING CREDITORS
As well as getting money in quickly we need to be prudent in how much goes out. We need to
manage this to ensure a good cash position.
Some practical hints include :
• Knowing the amount and type of stock you are holding
• Knowing the cost of stock you hold
• Do your suppliers accept returns ?
• Are purchases geared towards busy periods ?
• Knowing where your costs are
• Being able to pick discrepancies in costs soon after the event
• Create good relationships with your suppliers
• Are purchases done by 1 person and do they shop around for better prices ?
www.wickedconsulting.com.au

16. CASHFLOW MANAGEMENT
REPORTING
With all the cashflow management information that is needed today to efficiently monitor and
move on potential problems it stands to reason that there needs to be some way of analysing
the
information.
A reporting system that gives you all the information quickly that you can understand, highlight
areas that need attention is what is needed to gain a complete picture of the current situation.
This is also relevant with budgets and the longer term cashflow objectives of the organisation.
Many of these reports can be created from the accounting system or worked out on a
spreadsheet or even a mixture of the above. The important thing is that you have reports that
tell
you the information that you need. Every business is different but these types of reports will only
change in size and complexity but still have basically the same information.
It also might be advantageous depending on how complex the information you require is to
create some simple KPI’s in conjunction with the reports
www.wickedconsulting.com.au

17. CASHFLOW MANAGEMENT
CASHFLOW WARNING SIGNS
With all the fluctuations in business it is at times difficult to ascertain whether the merry go
round
Of ups and downs is just a normal pattern and will change again as it always does or are the
signs that the cashflow might be in trouble.
Some early warning signs might be :
• Going over your bank overdraft / credit facility
• Part paying suppliers
• Having to pay suppliers in cash ( not having a credit facility)
• Having trouble paying creditors and wages
• Having trouble meeting compliance payments (tax, super)
• Concentrating on cash management not running the business
• Not meeting projected forecasts repeatedly for no external reason
• Having to continually put of growth decisions (capital purchases, new staff)
www.wickedconsulting.com.au

18. CASHFLOW MANAGEMENT
IMPROVEMENT STRATEGIES
On top of all the things we need to remember to manage our cashflow here are some other
useful and practical ways to help improve your cash management.
• Invoice as soon as practical to do so
• Make sure payment terms are at the limit they need to be
• Increase prices to people that pay slow
• Create better systems to pay suppliers
• Update budgets regularly
• Increase cash sales
• Look at all costs for better savings
• Put off large purchases until you can budget & pay for them
• Make sure regular analysis is done
• Think of leasing assets rather than buying
www.wickedconsulting.com.au

19. CASHFLOW MANAGEMENT
IMPROVEMENT STRATEGIES
• Get progress and or start up payments from customers
• See if assets can be more productive
• Sell of surplus assets
• Be better at collecting money
• Pay quicker if offered incentives
• Get extended credit from your suppliers
• Keep stock levels as lean as possible
• Control your spending habits
• Delay hiring new staff maximise productivity of what you have
• Staff knowing their job well and understand cash cycle
www.wickedconsulting.com.au