Cash shortages can be the result of poor planning and is one of the primary reasons businesses fail.
For this reason, developing a strong cash flow projection process creates a firm foundation of planning that helps warn the business when cash flow trouble is on the horizon well before the issue arises.
As a company’s cash position becomes more unstable, the frequency of the cash flow analysis should increase and the time period of evaluation should shorten.
Cash Flow Analysis
Cash flow analysis is a simple concept that can be challenging to execute due to the number of variables that go into the process.
It is “simply” predicting future events, evaluating the likelihood and timing of customers' payments, detailing and analyzing future expenditures as well as assessing vendor term flexibility.
It is easy to assume that receivables will continue coming in at the same rate they have historically, that payments can be delayed, and that all other variables are accounted for.
But it is equally as easy to miss something, business shifts unexpectedly, and that you have failed to consider the impact of seasonal sales fluctuations.
Cash on Hand + Cash Inflows
Cash flow analysis starts with taking cash on hand at the beginning of the period with projected cash inflows from receivables and other sources.
Through this process, you will collect information from individuals throughout the business including the sales team, accounts receivable, purchasing and the finance department.
Each of these conversations focus on the timing, likelihood and sources of cash inflows from receivables collections, service fees, bad debt collection, vendor rebates, insurance claim payments, and more.
It is effectively connecting with your organization to fully understand your cash position.
Cash on Hand + Cash Inflows + Cash Outflows
The other side of an accurate cash flow projection is gaining detailed knowledge and clarity on the amounts and timing of cash outflows. Each significant projected expenditures should be detailed.
Standard expenditures would normally include rent, cash purchased inventory, payroll obligations, taxes withheld or payable, bonuses, cash purchased equipment, professional fees, utilities, office supplies, debt payments, advertising, vehicle and equipment maintenance and fuel, and capital distributions.
Cash flow projections are a critical tool for businesses to effectively prepare for the future.
ACT and Engage
As we have consulted with clients and business owners during 2020, the steps have been the same.
We help clients assess and engage their specific circumstances and then advise clients to focus on the specific controllable areas that impact the bottom line.
One of the primary areas of focus for both us as an advisor and the client is gaining a clear view through the cash flow management process.
Our B&V CFO Advisory Services team works with business owners to ensure a rock solid accounting foundation, actionable cash flow management services, and strategic Controller and CFO advisory support to mitigate brand damage risk.
Our accounting, regulatory and financial expertise provides business owners comfort that their financial health is well handled while the owner focuses on driving the company forward.
Our Part of Your Solution
All businesses have a need for cash flow analysis and projections.
Our B&V CFO Advisory solution provides experienced Controllers and support team members with experience in cash flow analysis and establishing best practices.
Whether supporting your accounting team or serving as your outsourced accounting and finance function, we assess the issues, choose the best solution option available, transition into solving the issue and engage in the process.
Our experience has shown us that our CFO Advisory services generally represent 60 to 75% of the cost of a fuller sourced, on-site accounting controller’s salary, benefits, and bonus.
We engage our clients with a highly experienced team at a fraction of the cost of an in-sourced team.
Our dedicated CFO / Controller, Accounting Manager and support staff is always there to answer questions, provide a structured control environment to protect your assets, and focus on helping you understand and mitigate your financial and operational risk.
If you are a service-based business:
- In need of financial expertise and guidance,
- Desiring a cost effective alternative to a full time Controller / CFO
Our B&V CFO solution may be the best option. Our aim is to take care of your strategic finance and accounting needs so that you can take care of your business.
About the Author
Kevin Stewart is an accounting executive within professional services, public and private growth companies.
He has 20 years of experience turning around and building accounting and finance teams to fix the sins of the past, stabilize the now and create organizations to support growth.
His deep finance, accounting and compliance expertise helps business owners focus on what they do best – run and grow the business.
As your Chief Profit Officer (CPO), he will help improve your profits by focusing and advising on the controllable financial aspects of your business.
Projecting Future Cash Flows (Part 2)