Cash Flow & Financing

Unlike the average business student, every owner is aware that cash flow is the “lifeblood” of any business. Cash flow is directly related to the cash cycle of the firm—the amount of time required to turn cash invested in inventory or salaries into incoming cash.

Common symptoms of tight cash flow include having to offer early payment discounts, high accounts receivable (often two months of sales or more) and delays in production because of material shortages. Because the company is effectively financing their customer’s business at no interest, the ownership often finds that they have little cash to invest in growth, or that they end up contributing additional personal funds.

A system for measuring, monitoring and controlling the flow of cash provides a realistic benchmark as to how much working capital is needed to sustain operations and will be needed for various levels of growth. Cash flow and proper financing prevents a company from growing too fast to financially sustain itself. It also helps owners avoid sleepless nights worrying about how to make good on commitments.

A proper business plan should fit into a plan for profitability (budget). This is the best reflection of what the company expects to do for the coming year and includes all applicable costs and cash flow to ensure that both profits and cash flow are adequate. For example, if a company is planning to move into a new market, investment may be required to acquire equipment, hire new personnel or purchase additional inventory. The questions then become when will that be possible, and what will have to be done first?

What we sometimes hear…

  • Some of my customers take too long to pay.
  • I’ve had to use my line of credit to pay my employees.
  • Budgeting might help, but I have never created a plan for profit before.
  • I’m not sure what my break-even point is.
  • Our business is seasonal, so some months are really tight.
  • I can’t afford to keep sufficient inventory.
  • I thought I could afford the expansion but was then left struggling to meet payroll.
  • We need new equipment but we don’t have a line of credit to borrow against.

We help companies establish systems that…

  • Define financial goals and create variance reports.
  • Forecast income for timely payment of expenses.
  • Develop financial and operational plans to secure working capital loans.
  • Track and collect from slow-paying customers.
  • Evaluate overhead costs to determine staffing levels.
  • Record and account for operational cash needs.
  • Categorize, organize and evaluate operational costs.
  • Identify true fixed and variable costs to determine break-even.
  • Set up a budget with controls to attain overall financial goals.

If you’ve been wondering about how other companies have managed cash flow and/or cost control issues, perhaps it’s time to consider benchmarking. To set up an Initial Assessment meeting with a Regional Manager in your area, please contact us at