BCEN 2900Entrepreneurship

Chapter 12Cash Flow Management

Cash Is KingWhat does this

mean?

Why is everything about cash?

Where can cash go in the first few critical years?

Cash Flow CycleThe time lag between needing to pay cash

and receiving cashShould be monitored daily!

Entrepreneurs need to be:Cash FindersCash PlannersCash DistributorsCash CollectorsCash Conservers

Cash and ProfitsYou can be profitable and not have enough

cash! How does this happen?!

Profit: Difference between total revenues

Cash flow: The flow of cash into and out of a business over time.

Preparing a Cash Budget1. Determine a minimum cash balance you can’t

do without.

2. Forecast sales.

3. Forecast cash receipts.

4. Forecast cash disbursements.

5. Determine the end-of-the-month cash balance.

Where are the biggest problems in cash flow management?Accounts receivable

Must have clear policies that are enforceable.Must be able to accurately screen customers.Send invoices promptly.Act quickly.

Accounts payableStretch out payables to end of credit period, if

no discounts are available for paying early.Negotiate the best possible terms for credit.

Where are the biggest problems in cash flow management?Inventory

A tightrope routine between too much and too little

The cost of holding inventory can be 1/3 of the value of the inventory!

Move stale inventory by having sales.Point-of-sale systems can keep your inventory

manageable.

How to Keep Your CashBarter

Bartering exchanges

Cut overhead costsLease where

possible.Be frugal the first

few years.

Have a great control systemTracking costsTracking theftControlling bad

checks

Budget and monitor daily.

Use sweep accounts.