How can we help? Call us at 360-455-1569 or email Info@LindaKeithCPA.com.
default-logo

From cash-starved to cash-rich…how companies are using their balance sheets to turn it around

An article on How to Turn Your Cash-Starved Company into a Cash Cow: 21 tips on How to Generate Cash within Six Months caught my attention and I decided it is time to share some basics, again. The author, Gary Patterson, MBA, CPA advises businesses and organizations on fiscal and risk issues and his ideas triggered a few of my own.

Why now?

As we finally come out of ‘The Great Recession’

  1. Many businesses have already taken every step they can think of to improve their cash position…but last looked closely at these measures over a year ago. Time to look again.
  2. Others just recently got into a cash flow challenge because this recession and their business’s recovery has taken longer than they planned. It is not too late in the game to institute cash saving measures.
  3. Still others are gearing up for growth which requires a careful monitoring of cash flow. Planning for growth needs to include planning for cash flow.

Bankers and Business Owner/Managers

If you are the banker, contact your prime customers or prospects and suggest you get together for a conversation that can help their business and their cash flow.

You don’t have to make it sound like you think they are in trouble. Cash flow and cash management issues are as important to a healthy business as they are to a troubled business.

If you are the business owner, consider (or reconsider) whether you are making the most of your cash generation strategies.

Linda’s *Balance Sheet* Cash Improvement Opportunities:

Cash:

  • Communicate with your banker and
    company owners about availability of additional cash as needed.
  • Track
    cash needs carefully.
  • If cash is tight, create a 13 week cash
    flow projection at least monthly. If it is really tight, do it weekly.

Receivables:

  • Bill promptly.
  • Call when the customer is even one day late and follow up on the service or product. Make it a customer service call but of course, the late payment will come up as well.

Payables:

  • Do not slow payables beyond the due date without a conversation with your vendors. You are in this together and they will remember. But if you are a valued customer with a temporary challenge, they may be happy to work with you.
  • Do not pay down debt early without carefully considering continuing cash needs or expenses/purchases you have deferred.

Inventory:

  • Discount slow moving inventory to get rid of it and improve cashflow.
  • Communicate with your vendors to be sure you can get what you need quickly when you need it.
  • Watch for stock-outs and days in inventory to fine-tune your purchasing.

That is my short list and I recommend you click
through to Gary’s article
for his 21. Next post I’ll focus on Income Statement CIOs (Cash Improvement Opportunities).

Resources on Financial Statements

Lenders and business owner/managers often need a brush-up on business financial statements to make the most of these ideas. Here is a short list of the relevant eCourses I have created just for lenders and they are just as valuable to business owner/managers:

  • Balance Sheet Basics (25:39 minutes)
  • Income Statement Basics (16:05 minutes)
  • Statement of Cash Flows Basics (22:39 minutes)
  • Terminology: A Foreign Language (25:53 minutes)
  • Types of Business Entities (22:58 minutes)
  • Cash versus Accrual Basis (16:20 minutes)
  • Debt, Debt Ratios and Debt Shortcuts (15:47 minutes)
  • Depreciation in Financial Statements and Tax Returns (17:10 minutes)
  • Introduction to Analysis (18:35 minutes)
  • Liquidity Ratios and Analysis (19:18 minutes)
  • Operating Cycle and Turnovers (23:11 minutes)
  • Leverage (20:57 minutes)
  • The Write-up (21:37 minutes)

Check them out at www.LendersOnlineTraining.com.

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at www.LendersOnlineTraining.com, she speaks at banking associations on risk management, lending and director finance topics.