10 “What happened to the cash · What happened to the cash? Example – For One Month What...

8/11/2013

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Understanding Your

Cash Flow

In Less Than 10 Minutes

By Philip Campbell

In 10 Minutes or Less each month, be

able to answer this question:

“What happened to the cash

last month?”

The ONE Goal

Philip Campbell

� Experienced accounting and financial

consultant (30 years)

� Passion for helping you take control of

your cash flow

� Understands the entrepreneurial spirit

� Author Never Run Out of Cash: The 10

Cash Flow Rules You Can’t Afford to

Ignore

Can You Explain WHY?

Profit $20,730

Cash went DOWN ($4,462)

Why?

Can You Explain WHY?

Loss ($12,306)

Cash went UP $25,053

Why?

Would it Be Wise To

Understand What

Happened to Your Cash?

Profit $15,831

Cash went Down ($3,295)

Why?

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The Myth

Profit or

Loss

CASH

FLOW

Here’s What to Expect

• Focus is on understanding

• Your workbook

• Exercise using your numbers

• Email me your questions

Struggle and Distraction

Blah, Blah,

Blah, Blah

Blah, Blah

Accountant Owner

???

I understand

my cash flow…

It’s my new

super power!

Three Great Reasons to Focus on Cash

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FailureHurts!

The Definition of Failure in Business is…

Running Out of Cash!

All your hard work goesright down the toilet

The Worry Cycle

1

Cash gets tight

The Worry Cycle

1 2

Worry sets in

The Worry Cycle

1 2 3

You’re role shifts

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The Worry Cycle

1 2 3

Money may not buy happiness but it

does buy…

The BIG ProblemCash Flow Survey

Question

Do you feel like you

have your cash flow

under control?

Answer

0% 20% 40% 60% 80% 100%

82% No

The 4 Reasons Cash Flow is Such a

Mystery

1. Profit or loss is not cash flow

2. No clear definition in the business world

(it’s not a single number)

3. An increase in cash is not always good and

a decrease is not always bad

4. Accountant speak (and financial

statements)

How Do You Define Cash Flow?

Wikipedia: “Cash flow is the movement of cash

into or out of a business, project, or financial

product. Cash flow is a generic term used

differently depending on the context. It may be

defined by users for their own purposes.”

How Do You Define Cash Flow?

Merriam-Webster’s online dictionary: “A

measure of an organization’s liquidity that

usually consists of net income after taxes plus

noncash charges against income.”

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Other

"Timing"

Differences

Borrowings

and Debt

Service

Capital

Expenditures

Accounts

Payable

Inventory

Accounts

Receivable

Profit or Loss

CASH

FLOW

The Cash Flow Focus Report

� Focus on the top three changes in cash

� Write a one line description of the change

� Consider whether each change is good or bad

� Takes less than 10 minutes

� Understanding is the goal

Cash Flow Focus Report

What happened to the cash last month?(In thousands)

Is the change

One line explanation of the change Good or Bad?

Beginning cash balance -$

Increase in accounts receivable -$

Profit -$

Increase in accounts payable -$

All other changes, net -$

Net cash flow -$

Ending cash balance -$

Example – For One Month

� Profit was $15,831

� But cash down ($3,295)

So the question is:

What happened

to the cash?



Is the change


Beginning cash balance 58$

Increase in accounts receivable (23)$ The large orders (below) were on credit Good

Profit 16$ Sales were up nicely. A number of large orders shipped Good

Increase in accounts payable 9$ A number of vendor invoices were paid after month end Good

All other changes, net (5)$

Net cash flow (3)$

Ending cash balance 55$



Is the change



Change #1: -$

Change #2: -$

Change #3: -$


Net cash flow (3)$


1

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Is the change



Increase in accounts receivable (23)$

Profit 16$

Increase in accounts payable 9$


Net cash flow (3)$


2



Is the change



Increase in accounts receivable (23)$ The large orders (below) were on credit

Profit 16$ Sales were up nicely. A number of large orders shipped

Increase in accounts payable 9$ A number of vendor invoices were paid in early Nov


Net cash flow (3)$


3



Is the change



Increase in accounts receivable (23)$ The large orders (below) were on credit Good

Profit 16$ Sales were up nicely. A number of large orders shipped Good

Increase in accounts payable 9$ A number of vendor invoices were paid in early Nov Good


Net cash flow (3)$


4

Example - Apple for 2012

2012

Profit $42 billion

Cash went Up $ 1 billion

(Apple financial statements)

What happened to the cash last month?(In billions)

Is the change



Net income 42$ An awesome 27% of sales Good

Investments (38)$ They invest excess cash in S-T and L-T securities Good

Capital expenditures (8)$ Doubled from last year (but part of their strategy) Good

All other changes, net 5$

Net cash flow 1$


Example - Apple for 2012 Example in QuickBooks - Rock Castle

Construction

Profit $3,786

Cash went DOWN ($14)

Why?

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QuickBooks – Statement of Cash Flows Example Company in QuickBooks

Example in QuickBooks - Rock Castle

Construction


Is the change



Change #1: -$

Change #2: -$

Change #3: -$

All other changes, net -$

Net cash flow -$


1


Construction


Is the change



Accounts receivable (7)$

Profit 4$

Payments on AnyCity note payable (3)$


Net cash flow -$


2


Construction


Is the change



Accounts receivable (7)$ Two remodels billed but not collected

Profit 4$ Well below budget

Payments on AnyCity note payable (3)$ Continuing to pay down the note to the bank


Net cash flow -$


3


Construction


Is the change



Accounts receivable (7)$ Two remodels billed but not collected Good

Profit 4$ Well below budget Bad

Payments on AnyCity note payable (3)$ Continuing to pay down the note to the bank Good


Net cash flow -$


4

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Live QuickBooks Example

• Pull up the Statement of Cash Flows from

QuickBooks

• Drilldown features

• Complete the Cash Flow Focus Report on the

screen

The Drivers of Cash Flow You Will See

Frequently

Profit (Loss)

Revenues

minus

expenses

Accts Rec

Sales vs. cash collected

Inventory

Cost of goods sold vs. inventory purchases


Frequently

Acct Payable

Timing of

payment to

vendors

Credit Cards

Amounts charged vs. payments

Other Payables

Amounts accrued vs. payments


Frequently

Property

Capital

expenditures

or sale of

assets

Debt

Borrowing or paying down debt

Capital

Owner investment or distributions

The ONE Thing

What’s the ONE thing

you are going to do to

better understand,

manage and improve

the cash flow of your

business?

It’s Your Turn

• Start your first Cash Flow Focus Report

• Do it while it is fresh on your mind

• Send me an email if you have a question at

[email protected]

• Fast Start Coaching program

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