I have received several questions regarding bridging the cash flow gap, as in “How do I bridge my cash flow gap? Where do I find working capital? What can I do to bring in cash for customers sooner?” Read below for the answers.
Multi-Week Cash Flow Projections
Companies need to make 3-month/ 12-week cash flow projections. I have a tool that I use but it is essentially an Excel spreadsheet that shows the cash coming in (accounts receivable paid, cash sales, and credit card sales) and cash going out (cash/check payments on accounts payable, utilities, rent, maintenance, any periodic payments such as quarterly taxes), and summing on a weekly basis. Below the weekly sum, I run a cumulative, running total of all the weeks. If the running total is negative, that’s a huge problem that needs to be addressed in advance.
To put the above another way: cash coming in is cash inflows, cash going out is cash outflows. For any given week, you want the following: Cash Inflows – Cash Outflows >0.
Advance Tracking Prevents Shocks
By tracking true cash in advance, companies can see how upcoming “shocks” (a large drop off due to seasonality, a large payment) will impact the business and adjust accordingly. Companies with slow paying customers can focus on getting those customers to pay within the specified time, require deposits, or require partial pre-payments. Companies can encourage payments with credit cards. Many residential plumbing customers pay with credit cards but businesses can to. Companies can push out payables in weeks where cash flow is tight i.e., if they normally pay upon receipt although they have 30 days, wait until the 27th day to put the check in the mail. Another idea: pay with a credit card. That provides another 30 days to generate the cash to cover the charge.
Time Provides Options
There are a number of actions companies can take to conserve cash and build up a cash reserve to cover the weeks when cash flow goes negative. By tracking both weekly cash flow and the accumulated cash over a 12-week period, companies have significantly more options than when they’re trying to make adjustments 1-2 weeks in advance or drastically worse, the week of!
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