Cash Flow ManagementStrategies for managing and improving cash flow

You can’t build a successful small business without Cash Flow

Understanding Cash Flow Forecasts

• A cash flow forecast shows the expected inflow and

outflow of money for a period of time

• You need to develop a cash flow forecast and update it

regularly

• It can alert you before you run out of money

• It’ll help you manage your business more effectively

• It’ll help you monitor you business spending

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Develop a Cash Flow Forecast

Inflow

• Cash from sales

• Receivables

• Loans

• Other sources of money

Outflow

• Rent

• Utilities

• Office expenses

• Salaries

• Inventory

• Employee benefits

• Asset purchases

• Other expenses4

Exercise

• Case study – Start-up

• Case study - Established business

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Cash Flow Forecast

When developing a cash flow forecast take the following into

consideration

• Season fluctuations

• Price increases

• Emergency situations

• Be conservative and realistic

• Allow for late payments by customers

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8 Steps to Managing your Cash Flow

1. Understand the sales cycle

2. Optimize your collection policy

3. Control your purchases

4. Pace your payments

5. Use your bank

6. Manage your assets

7. Plan your taxes

8. Balance cash flow and profitability

Source: BMO website

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Cash Flow Tips

• Try and get cash in as quickly as possible and slow down the outflow

• Deposit cheques daily

• Allow customers to do electronic transfers or pay by credit card

• Monitor your petty cash, let employees use a company credit

card so you can check their expenses daily

• Deposit extra cash in interest bearing accounts

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Cash Flow Tips• Taxes

– Get a good accountant– Do some income splitting– Defer tax by using tax planning tools– Keep your taxes up to date

• Credit– Ensure that you have strict policies in place– Set credit limits– Do credit checks– Ensure your receivables– Accept credit cards

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Cash Flow Tips• Accounts receivable

– Invoice immediately

– Monitor your receivables. Don’t let receivables get out of hand use a

collection agency if you have to

• Sales

– Know your gross margins for every product

– Pay sales people based on gross profit and collection

– Don’t take on large orders before checking you have enough cash flow

and resources

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Cash Flow Tips

• Purchasing

– Monitor your inventory

– Develop purchasing guidelines for your employees

– Shop around for good deals

– When your input costs increase, re-look at your pricing

• Payments

– Stagger your payments and don’t pay early unless you get a discount

– Offer to pay with post- dated cheques

– If you have a problem communicate with your supplier11

Cash Flow Tips• Inventory

– Avoid tying up money in inventory

– Monitor your inventory turns

– Run a promotion to get rid of dead stock

– Watch for theft

– Develop a stock management system

• Manage your debt

– Use other people’s money wisely

– Use long-term and short- term money properly12

Cash Flow Tips• Manage your debt

– Keep your debt to equity 1:1

– Look for money long before you need it

• Fixed assets

– Manage them well

– Sell under utilized assets

– Maintain your assets

– Insure your assets

– Lease instead of buying13

Some Final Guidelines

• Check your bank balance daily

• Monitor your receivables weekly

• Count your inventory and update your cash flow forecast monthly

• Meet with your bank’s small business advisor at least quarterly

• Analyse your financial statements with your accountant annually

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Cut Expenses

Where can you cut expenses?

• Hire freelancers to cut personnel costs

• Have employees work from home

• Buy refurbished office equipment

• Buy inventory on as-needed basis

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Small Business Success

No matter what the economic forecast,

keeping your cash flowing can:

• Help you grow and expand

• Keep vendors and employees paid and

happy

• Invest in new products or markets

• Make your business a success!

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Thank You