Friday, May 14, 2010

Cash Management and Cash Management Techniques (cont'd)

You can also pursue a line of credit with an accounts receivable financing or factoring firm. These entities charge much higher rates than banks but often are a good source of capital if you are growing significantly or garner a much larger contract than is typical for your company. Banks use your company's three-year historical performance to provide credit lines so large increases in revenue over a short period often do not translate into a credit line increase for a few quarters. A receivables financing firm will provide a line based on your historical financials and the credit-worthiness of your customer. Rates are typically 1-2% per month but can be as high as 4-6% per month - assuming a 30-day payoff on the receivables. 4-6% per month equates to 48-60% per year!!! Sometimes you have to take what you can get but do so ONLY for very short periods with a plan of action to obtain other financing at much better terms within the next 4-6 months.

To summarize, cash is always king but definitely in restricted capital environments. Money is still available but it takes longer and requires more creativity and perseverance to access it. Therefore, plan your cash needs and budget your cash resources as much as possible. Know your daily spend rate and be able to quickly determine how much cash you have on hand at any given time. Know your expected operating cash flows and the timing of those cash flows. If you do not, you are headed for trouble.

Or you may already be troubled - stressed out, continuously seeking money from somewhere, continually trying to increase revenue even though you may lose money with each sale. Stop. Determine your cash outflows and inflows on a per project basis, and make decisions based on that information. In this market, you may have to jettison slow-paying, high complaint customers. When cash is king, these customers drag down your bottom line.
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Wednesday, May 12, 2010

Cash Management & Cash Management Techniques (cont'd)

We will address some of the ways to manage cash. But the all important first step is to check your cash flow statement weekly, if not daily. You cannot maange anything if you don't even know what's going on.

Ways to manage cash:

  • Obtain terms from your suppliers on your materials and supplies. If you can get 30-45 day terms, you can reduce both the amount of the negative cash flow and the length of time cash flow is negative.
  • Use contractors instead of trade or part-time personnel and subject them to the same payment terms you are under with your largest customers. Thus, instead of paying trades people and/or part-time employees every 15 days, you pay the contractor within 30 days of the submission of the invoice. In both of these instances, you align your cash outflows with your cash inflows as a way of negating or minimizing negative cash flow.
  • Of course, quality (and safety, for manufacturers, construction companies, and similar) is often a concern when you utilize a high number of contractors whose performance and sourcing you cannot directly control. Shoddy work leads to poor customer performance and additional expenditures tied to correcting mistakes. Consequently, over-dependence on contractors can lead to cash flow shortages and other operational issues.
  • Obtain or increase your line of credit. A credit line can really help with cash management and working capital. Working capital = short term assets - short-term liabilities. This typically translates into working capital = cash + account receivables - account payables - payroll payables. You can use your line of credit to pay payroll or purchase supplies when you cannot get terms. If you do not have a line of credit with a bank, pursue one. Cultivate a strong relationship with a banker at Vice President (or equivalent) level and above. In these economic times with the credit markets still roiling and many banks dealing with issues in their own lending portfolios, strong relationships play an even larger role in obtaining credit than a year and a half ago.

Final segment: Friday, May 14.

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Monday, May 10, 2010

Cash Management and Cash Management Techniques

Cash management in this economic environment is crucial. Cash is the life-blood of any business. As the saying goes, "Cash is king". With so many banks having tightened credit standards due to what has happened in the credit markets or within their own lending portfolios, and new and more restrictive government mandates, it is crucial that businesses fully understand their cash needs IN ADVANCE and make adjustments to their operations to ensure that cash is available. Otherwise, companies may find themselves in a liquidity crisis - unable to meet payroll, pay suppliers, or pay contracttors - which can lead to bankruptcy or an operational shutdown.

As I've stated before, cash is NOT income or profit. You can show a highly respectable net profit (margins of 10-15% or higher) and still be cash flow negative. Stated another way, your income statement can look like you're doing very well, while your bank statement tells a completely different story.

Unless you manage your cash appropriately, you will likely struggle financially trying to come up with cash to pay your employees and your suppliers. This unplanned cash flow shortage is a big reason many companies go out of business during a recession. Yes, many go bankrupt because they lose key customers. But many who seem to be doing phenomenally well during the boom times also go out of business. Why? Because they owe their success to continually adding new customers. When the new customers disappear or the rate of adding new customers drastically decreases, other operational issues like poor receivables management, poor supplier relationships, and other issues taht directly impact cash management come to light.

How does this happen? Well, new customers create overlap so payment come in that can cover the cash outflow spent servicing existing customers or paying out on poorly structured commission plans. You must make cash management an integral part of budget planning and analysis in order to plan your cash needs and manage your cash appropriately.

To be continued on Wednesday, May 12.
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Friday, May 7, 2010

Accounting and Finance for Non-profits 101

Ramona Baptiste, who is in my United Way V.I.P. (Volunteer Involvement Program) training class, is putting on a training class for non-profits tomorrow. Ramona is a CPA who has worked with a lot of non-profits in the past. The United Way V.I.P. training prepares participants, over a 10-week period, for roles as directors on non-profit Board of Directors. All proceeds will be donated to United Way of Metro Atlanta, Inc.

I think it's an excellent opportunity for non-profits to come up to speed in the accounting and finance areas, which is often a weak area among non-profit founders and executive directors.

Here is the information:

Who should attend?
This workship is ideal for individuals involved with non-profits in any capacity, who want to understand the following:
  • Fiscal responsibilities
  • Cash flow/cash management
  • Introduction to fund (non-profit) accounting
  • Budget review and analysis
  • Financial statement review
  • Tax requirements (Form 990)

Event Details:

When: Saturday, May 8, 2010, 9 am - 1 pm

Where: Carrie Steele-Pitts Home, Ollivette S. Allison Life Learning Center, Multi-purpose Room, 667 Fairburn Rd. NW, Atlanta, GA 30331

Cost: $25

Continental breakfast will be served. Remember, proceeds will be donated to United Way.


To register, please email your name, contact information and number of participants to Ramona Baptiste at Payment should be made online at (click on the "Give Now" button). Feel free to let others who may be interested in attending know. You can contact Ramona directly at 404-808-3367,

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Wednesday, May 5, 2010

Small Business Owners and Specialty Finance Companies

I read an article in last Monday's Wall Street Journal which prompted me to revisit the topic of seeking funding and community banks. Banks and other entities that focus on providing funding to specific industries or types of companies are called specialty finance companies or specialty lenders. True, some specialty lenders provide a specific type of financial product. But these still do this within the confines of industries they are familiar with.

I've said this before. Look at the community banks and other small, regional banks in your area. Try to determine what their loan portfolio generally consists of. Sometimes they'll tell you in their marketing collateral or on their website. Other times you simply have to call and ask. (This actually works extremely well the vast majority of the time.) Another way is to read the bios of the Board of Directors. If you notice a trend in industries, you can believe that the bank is well-represented in that industry (those industries). Why? You invest in what you know. The Board reviews the financial documents of the bank and sometimes approves loans above a certain limit.

The loan officer (remember, VP or equivalent level or higher!) will have a thorough knowledge of the industry(ies) the lending institution serves since he or she would have analyzed many of the applications and periodically reviewed much of the existing loan portfolio.

If you are a technology company or biotech/life sciences company, Silicon Valley Bank is a strong potential lender for you. I became acquainted with them several years ago during my tenure at Georgia Tech. Although they were founded in, and are based in Silicon Valley, CA, they do lend throughout the US and have offices around the country.
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