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Managing Your Cash Flow

It does not matter what your business' financial health is currently. Your business must focus on managing its cash in order to avoid unexpected cash flow shortages and to maximize profits. Consider these scenarios.

  1. Your business is profitable, and growing rapidly. This business needs to pay careful attention to its cash flow. Increasing sales and profits do not necessarily result in a healthy cash flow! Chances are, the owners of this business focus daily on sales and gross profit margins. However, if this business is not careful planning its cash needs, managing its receivable collections, managing its inventory, and monitoring its costs, it could quickly develop a cash shortage without realizing it is coming. Depending on the size of this business, a sudden cash flow shortage could shake the confidence of the external parties funding the growth -- it's lenders, it's investors, and even key vendors. If any or all of those vendors "pull back" when the business suddenly needs cash, it can potentially kill the growth of the business. In some cases, the business's reputation might be irreparably damaged.
  2. Your business has always enjoyed maintaining a large cash balance. To many businesses, that sounds like utopia. But, is it always good to keep a large cash balance underutilized? Probably not, depending on your circumstances. What is the return on underutilized money? Zero, or close to it. Successful investors will tell you that you can make more money by investing your excess cash into other investments that yield a sufficient return (within an acceptable chance of risk) -- whether parking cash in short term investments, investing in other companies, or starting another product line or other venture.
  3. Your business is usually playing catch up with its vendors. Your checks bounce. The reputation with its vendors is deteriorating. The staff spends much of its time placating vendors with partial payments. They have too little time to provide you with useful financial information on a consistent and timely basis to improve profits or to improve the business's cash flow liquidity problems. Sometimes, there is not enough money available for the owners to be paid. If this is your business, and this scenario has been going on for awhile, the only way out is to take appropriate action soon to proactively address the reasons for the cash shortage.
  4. You'll probably need help in identifying the problems causing the cash shortage. Unfortunately, you will probably need to find some source of cash to pay in advance for the expertise of someone like my Firm to help you identify the problems and advise you on the action to take. Consider borrowing from family or friends if you cannot obtain conventional financing. That may be humbling, but think of the freedom if you can get the business's cash flow and profitability on track. Worst case, perhaps the cash flow problem is occuring because the business is not profitable enough. Take heart, the cash problem may not be a reflection on you -- the business may be existing because you make it work through hard work and financial sacrifice. Even if you find out that the business cannot be turned around, you should find that out sooner rather than later -- so you can invest your future time and dollars with other endeavors.

  5. Even if your business is growing steadily, it can experience a sudden cash flow shortage. All businesses need to monitor its "Cash Conversion Cycle" of sales...from receipt of goods or services used to produce the sales, to payment of those goods and services, to when the sale is earned, to when the sales are collected. If any of those stages is not monitored, cash outflows can exceed cash inflows.

No matter what your business's financial health is, my Firm can help you or your staff to manage your cash flow to avoid unexpected cash flow shortages and to maximize profits.

My firm can advise you about your cash flow by:

  • Predicting when and how your cash needs will occur. You can plan to keep excess cash for such times, or if needed, you can present your needs in advance to outside sources of cash. Your business has a much better chance of getting the financing it needs when it is proactive. Lenders and investors are more confident in your management skills when you can plan your cash flow in advance in an orderly manner, rather than going to them with an urgent request.

  • I can prepare projections of income, expenses, profits, and cash flow efficiently. I use a program called Planguru to prepare the projections. Planguru is specifically designed to project your profits and cash flow as I enter data and assumptions into the projection. I can import historical data from QuickBooks as a base from which to project. I can also import actual data to compare actual to budgeted results, and to create rolling forecasts to plan the rest of the year.

  • identying sources available to you for meeting your additional cash needs.

The starting point for avoiding a cash crisis is allowing us to develop a cash flow projection for you. We can help you develop both short-term cash flow projections to help you manage daily cash, and long-term (annual, 3-5 year) cash flow projections to help you develop the necessary strategy for cash needed to grow and to purchase equipment and other fixed assets to achieve your profitability and growth in value goals. Remember, achieving profitability and value goals usually translates into more cash for you and your business.

We can also help your staff to prepare monthly and year-to-date cash flow statements. Often, I hear business owners lament that, while they know they made a profit, they cannot understand where the cash went. This statement helps you to understand the sources and uses of cash during those periods.

We can also advise you about:

  • Obtaining an appropriate line of credit

  • Cash collection acceleration techniques

  • Effective collection policies

  • Effective payment policies

  • Obtaining a rate of return on your idle cash.


If you would like to learn more about how my Firm may be able to help your business manage its cash flow, please call Jim Blowers at (518) 344-6087, or email me at The initial consultation is free!