1 Cash Flow Management The man who does things makes many mistakes, but he never makes the biggest...

1

Cash Flow Management

The man who does things makes many mistakes, but he never makes the biggest mistake of all – doing nothing.

-Benjamin Franklin

Sam Thacker512-697-9509 Officesam@lesliethacker.com

Business Finance SolutionsCreating Cash Flow for Small Businesses

2

About Business Finance Solutions

Financial consultants and brokers.

Over $400 million in loans originated.

Working Capital, Real Estate, Import-Export, Equipment, Governmental Contract Finance.

20+ years business experience.

Leslie Thacker

Sam Thacker

3

Sam Thacker – Business Articles

Visit my small business finance articles on www.allbusiness.com, the Internet's #1 information

resource for small business owners.

3 times a week

Business finance articles are also appearing on the online websites for:

The San Francisco ChronicleThe Washington PostCBS NewsBusiness Week

4

Goal of Presentation

1. Provide a strong understanding of EBITA and cash flow and what components make up cash flow.

2. Have each participant leave today with knowledge of various ways of managing their cash on a day to day basis.

5

Cash Flow Management Three Basic Concepts

Cash = spending power

It is sometimes necessary to accelerate collection of receipts and decelerate payments

Minimize current assets and maximize current liabilities

6

Cash Flow Warning Signs

Five Warning Signs of CF Trouble: Decreased Liquidity Missed Trade Discounts Late Vendor Payments Slow Collections Less safety cash in bank

7

The Cash Flow Cycle

PURCHASES

CASH

INVENTORIESSALES

RECEIVABLES

8

EBITA

EarningsBeforeInterestTaxAmortization

9

EBITA Defined

Sales- Cost of Goods Sold

= Gross Margin- SG&A Expenses

= EBITA

Sales 1,200,000 COGS (800,000) Gross Margin 400,000 SG&A 200,000 EBITA 200,000

10

Cash Flow Components

EBITA, or earnings

+/- Changes in A/R+/- Changes in Inventory+/- Changes in Net WIP+/- Changes in Fixed Assets+/- Changes in A/P+/- Changes in Accruals+/- Changes in Debt

= CASH FLOW

11

Real World Example Cash Flow

Sales 1,200,000 COGS (800,000) Gross Margin 400,000 SG&A 200,000 EBITA 200,000

1 2

Cash = spending power

EBITA 200,000 +/- A/R (375,000) +/- WIP (75,000) +/- Assets 15,000 Cash Flow (235,000)

12

A/R Turnover Calculation

Total A/R 375,000 Average Mo. Sales 100,000 Average Daily Sales 3,333 A/R Turn in Days 113

Total A/R / Average Daily Sales= A/R Turn in Days

13

Increasing A/R Collections

Reduce the # of days A/R outstanding improves CF.

Ultimate risk of collection is decreased as days outstanding decrease.

14

Lengthening A/P Average Time

Slow down payables, improve CF

Negotiate current liabilities into notes payable improves CF.

Increases risk of vender COD.

Decreases discount leverage with vendor.

15

Communication with Key People

Make sure your critical vendors and key employees understand that cash flow is tight and you are working to improve it. Share your plan!

16

Create a Cash Flow Forecast

A cash flow forecast will assist you managing through the period of tight cash.

A good (free) cash flow Excel based cash flow forecast with directions can be downloaded here:

http://www.lesliethacker.com/resources.htm

17

Make sure you know your true cost of sales or cost of goods sold (COGS)

Make sure you know what your true gross margin is

Try as hard as possible to pass along any supplier / vendor price increases to your customer

“Gottchas” to Remember

18

“Gottchas” to Remember

Never, ever, ever use the IRS as an unauthorized lender File 941 tax reports on time Pay 941 taxes on time

Monetary penalties are very high for: Failing to file 941 tax returns on time Failing to pay tax on time

19

“Gottchas” to Remember

If your business is subject to collecting sales tax File quarterly sales tax reports timely Do not fail to remit sales tax collected on

time Though the IRS is slower to catch you

then the State sales tax collectors, the Comptroller’s actions are swift and sure

20

“Gottchas” to Remember

Once a year, chartered entities must file a Public Information Report with the State Comptroller’s Office It contains very basic information about

the company Failure to file this report on time will

result in the forfeiture of your charter

21

Questions and Answers

Business Finance Solutionswww.lesliethacker.com

800-492-8842sam@lesliethacker.com