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Marc Compeau; Wednesday 7/7/2004

Cash Flow Management. Marc Compeau; Wednesday 7/7/2004. Work Sheet 2 Review. How can you use employees to achieve goals? How can you use customers to achieve goals? What did your best customer say about your culture? What can you do with this information?. Cash Management.

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Marc Compeau; Wednesday 7/7/2004

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  1. Cash Flow Management Marc Compeau; Wednesday 7/7/2004

  2. Work Sheet 2 Review • How can you use employees to achieve goals? • How can you use customers to achieve goals? • What did your best customer say about your culture? What can you do with this information?

  3. Cash Management • Young, growing companies are “cash sponges.” • A business can be earning a profit and be forced to close because it runs out of cash! • Cash management – forecasting, collecting, disbursing, investing, and planning for the cash a company needs to operate smoothly.

  4. Five Cash Management Roles of an Entrepreneur • Cash Finder • Cash Planner • Cash Distributor • Cash Collector • Cash Conserver

  5. Deliver Goods Order Goods Receive Goods Sell Goods* Customer Pays** Send Invoice Pay Invoice Day 1 15 40 280 218 221 230 50 14 25 178 3 9 The Cash Flow Cycle Cash Flow Cycle = 240 days * Based on Average Inventory Turnover: 365 days = 178 days 2.05 times/year ** Based on Average Collection Period: 365 days = 50 days 7.31 times/year

  6. Inventory Received Order Placed Cash collection Of receivables Sale Days in Inventory Days in Receivable Aug. 31 Sept. 30 Oct. 15 Nov. 30 Cash Conversion Period Days in Payable Cash payment for inventory Pokey Inc. Aug. 15

  7. Lightning Turn Co. Inventory Received Order Placed Cash collection Of receivables Sale Days in Inventory Days in Receivable Aug. 15 Aug. 31 Sept. 30 Oct. 31 Days in Payable Cash payment for inventory

  8. The Cash Budget • A “cash map,” showing the amount and the timing of a firm’s cash receipts and cash disbursements over time. • Predicts the amount of cash a company will need to operate smoothly. • A helpful tool for visualizing the firm’s cash receipts and cash disbursements and the resulting cash balance.

  9. Preparing a Cash Budget • Determine a Minimum Cash Balance • Forecast Sales (next week!) • Forecast Cash Receipts • Forecast Cash Disbursements • Estimate End-of-Month Cash Balance example

  10. The “Big Three” of Cash Management • Accounts Receivable • Accounts Payable • Inventory

  11. Beating the Cash Crisis Accounts Receivable • Establish a firm credit-granting policy. • Screen credit customers carefully. • When an account becomes overdue, take action immediately. • Add finance charges to overdue accounts (check the law first!). • Develop a system of collecting accounts. • Send invoices promptly.

  12. Beating the Cash Crisis Accounts Payable • Stretch out payment times as long as possible without damaging your credit rating. • Verify all invoices before paying them. • Take advantage of cash discounts. • Negotiate the best possible terms with your suppliers. • Be honest with creditors; avoid the “the check is in the mail” syndrome. • Schedule controllable cash disbursements to come due at different times. • Use credit cards wisely.

  13. Beating the Cash Crisis Inventory • Monitor it closely; it can drain a company's cash. • Avoid inventory “overbuying.” It ties up valuable cash at a zero rate of return. • Arrange for inventory deliveries at the latest possible date. • Negotiate quantity discounts with suppliers when possible.

  14. Avoiding the Cash Crunch • Consider bartering, exchanging goods and services for other goods and services, to conserve cash. • Trim overhead costs. For example: • Lease rather than buy • Avoid nonessential cash outlays • Negotiate fixed loan payments to coincide with your company’s cash flow

  15. Avoiding the Cash Crunch (cont.) • Trim overhead costs. For example: • Buy used equipment • Hire part-time employees and freelancers • Develop an internal security system • Devise a method for fighting check fraud • Change shipping terms • Switch to zero-based budgeting • Keep your business plan current • Invest surplus cash

  16. What is Break Even? • Your break even point is; The point at which your fixed costs + your variable costs = your revenue • What are Fixed Costs and Variable Costs?

  17. Break Even • How can you figure out your monthly, weekly, daily break even point? • What use is this information?

  18. How to make the bank love me survey results

  19. Sneak Peak • Media Planning • Surveying my customers (market research) • Advertising • Stretching media dollars • How to create a media budget that fits you Check out the Web updates!

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