Business Finance Solutions

Creating Cash Flow for Small Businesses

Cash Flow Management

The man who does things makes many mistakes, but he never makes the biggest mistake of all doing nothing. -Benjamin Franklin

About Business Finance Solutions

Financial consultants and brokers.
Over $400 million in loans originated.

Leslie Thacker

Working Capital, Real Estate, Import-Export, Equipment, Governmental Contract Finance. 20+ years business experience.
Sam Thacker

Sam Thacker Business Articles

Visit my small business finance articles on www.allbusiness.com, the Internet's #1 information resource for small business owners.
3 times a week

Business finance articles are also appearing on the online websites for:
The San Francisco Chronicle The Washington Post CBS News Business Week

Goal of Presentation
1. Provide a strong understanding of EBITA and cash flow and what components make up cash flow.
2. Have each participant leave today with knowledge of various ways of managing their cash on a day to day basis.

Cash Flow Management

Three Basic Concepts
Cash = spending power It is sometimes necessary to accelerate collection of receipts and decelerate payments Minimize current assets and maximize current liabilities
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Cash Flow Warning Signs

Five Warning Signs of CF Trouble:
Decreased Liquidity Missed Trade Discounts Late Vendor Payments Slow Collections Less safety cash in bank

The Cash Flow Cycle

CASH

RECEIVABLES

PURCHASES

SALES

INVENTORIES

EBITA
Earnings Before Interest Tax Amortization

EBITA Defined
Sales COGS Gross Margin SG&A EBITA 1,200,000 (800,000) 400,000 200,000 200,000
Sales - Cost of Goods Sold

= Gross Margin - SG&A Expenses

= EBITA

Cash Flow Components

EBITA, or earnings
+/+/+/+/+/+/+/Changes Changes Changes Changes Changes Changes Changes in in in in in in in A/R Inventory Net WIP Fixed Assets A/P Accruals Debt

= CASH FLOW
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Real World Example Cash Flow

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Sales COGS Gross Margin SG&A EBITA 1,200,000 (800,000) 400,000 200,000 200,000

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EBITA +/- A/R +/- WIP +/- Assets Cash Flow 200,000 (375,000) (75,000) 15,000 (235,000)

Cash = spending power

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A/R Turnover Calculation

Total A/R / Average Daily Sales = A/R Turn in Days
Total A/R Average Mo. Sales Average Daily Sales A/R Turn in Days 375,000 100,000 3,333 113

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Increasing A/R Collections

Reduce the # of days A/R outstanding improves CF. Ultimate risk of collection is decreased as days outstanding decrease.
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Lengthening A/P Average Time

Slow down payables, improve CF Negotiate current liabilities into notes payable improves CF. Increases risk of vender COD. Decreases discount leverage with vendor.
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Communication with Key People

Make sure your critical vendors and key employees understand that cash flow is tight and you are working to improve it. Share your plan!

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Create a Cash Flow Forecast

A cash flow forecast will assist you managing through the period of tight cash. A good (free) cash flow Excel based cash flow forecast with directions can be downloaded here:
http://www.lesliethacker.com/resources.htm
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Gottchas to Remember
Make sure you know your true cost of sales or cost of goods sold (COGS)
Make sure you know what your true gross margin is Try as hard as possible to pass along any supplier / vendor price increases to your customer
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Gottchas to Remember
Never, ever, ever use the IRS as an unauthorized lender
File 941 tax reports on time Pay 941 taxes on time

Monetary penalties are very high for:

Failing to file 941 tax returns on time Failing to pay tax on time

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Gottchas to Remember
If your business is subject to collecting sales tax
File quarterly sales tax reports timely Do not fail to remit sales tax collected on time

Though the IRS is slower to catch you then the State sales tax collectors, the Comptrollers actions are swift and sure
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Gottchas to Remember
Once a year, chartered entities must file a Public Information Report with the State Comptrollers Office
It contains very basic information about the company Failure to file this report on time will result in the forfeiture of your charter
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Questions and Answers

Business Finance Solutions

www.lesliethacker.com 800-492-8842 sam@lesliethacker.com

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