1 cash flow management the man who does things makes many mistakes, but he never makes the biggest...
TRANSCRIPT
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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 [email protected]
Business Finance SolutionsCreating Cash Flow for Small Businesses
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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
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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
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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.
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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
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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
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The Cash Flow Cycle
PURCHASES
CASH
INVENTORIESSALES
RECEIVABLES
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EBITA
EarningsBeforeInterestTaxAmortization
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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
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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
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Real World Example Cash Flow
Sales 1,200,000 COGS (800,000) Gross Margin 400,000 SG&A 200,000 EBITA 200,000
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Cash = spending power
EBITA 200,000 +/- A/R (375,000) +/- WIP (75,000) +/- Assets 15,000 Cash Flow (235,000)
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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
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Increasing A/R Collections
Reduce the # of days A/R outstanding improves CF.
Ultimate risk of collection is decreased as days outstanding decrease.
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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.
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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!
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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
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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
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“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
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“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
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“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
