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Cash Flow


There are times in almost every company’s life when the amount of payrolls and expenses and bills to pay exceeds the cash on hand, and seemingly will continue to do so for some foreseeable period. How do you get through this tough cash flow period?

Does the company have a line of credit with a bank or other lender, and if so, has it drawn the full amount of available credit? If not, then borrow additional funds to cover the current cash flow shortfall. If the borrowings are already at the limit of available credit, then you need to carefully manage the cash receipts and disbursements.Whether or not you borrow additional funds to cover the current shortfall, you still need to consider the items discussed below to ensure that you can identify the causes of the shortfall and perhaps put in place actions to prevent the shortfall from becoming ongoing.

First, are your accounts receivable accounts stretching out in terms of the number of days outstanding? Do you need to get more aggressive in calling your customers requesting payment?

Second, have you reviewed your level of expenses as compared to your projected revenues? Are the expenses exceeding the revenues, and if so, are there expenses that can be reduced or deferred to more closely match the current and projected level of revenue?

Are there inventory items or equipment for which there are no current or projected requirements, which can be sold to provide some additional cash?

Are there some new sales plans that can be implemented to increase revenue?

Assuming you have taken the actions above and still have more cash requirements than available cash for a foreseeable period, how do you manage to keep your vendors/suppliers supportive of the company when you know that you will be unable to keep their accounts current? One method is to develop a weekly schedule of cash – beginning balance, anticipated receipts, and cash requirements – for at least a two to three month forecast period. This entails identifying which specific customers may pay on specific weeks; which specific weeks will payroll and related payroll taxes be paid; when will rent and other specific items be paid; finally, which vendors/suppliers will be paid (and how much) each week. It is critical that every vendor be included in the schedule, not just the squeakiest of the wheels! Then, at least, each vendor knows they are getting some amount of cash (probably not as much as they would like), but at least they are not being ignored. And, track your actual results each week against the projections to ensure that going forward you can have some degree of confidence in the future weeks’ projections and your communications with your vendors/suppliers.

It is amazing (and rewarding) to see how supportive your vendors/suppliers can be in helping you get through these tough cash flow periods, when they know that you are considering their business requirements by ensuring they are included in your payment schedules. Besides putting together these weekly cash receipts/disbursement schedules, you now have a tool to use in responding to calls from your vendors enabling you to inform them of the projected amount to be paid to them and the date of anticipated payment. If something happens to delay the projected disbursement or change the amount, it is critical to communicate that information to the affected vendor/supplier.

The vendor/supplier is much more likely to be supportive when you keep him/her informed and updated as to the status of your anticipated payments to them.

In summary –

1. Identify the causes of your cash flow issues

2. Determine actions that can be taken to stop or minimize the shortfalls

3. Implement those actions that you can

4. Carefully manage the cash balances, receipts and disbursements each week until the shortfall can be overcome (but don’t stop your corrective actions just because the immediate problem is solved)

5. Continuously communicate with your vendors/suppliers, employees, etc. so they all understand the situation and what you are doing to ensure that they are being treated fairly and can have confidence in your ability to solve the problem

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