Managing cash – The lifeblood of the business

Do you have a plan for managing your working capital? Every company is different, and that means finding the right cash solution is far from one size fits all.

Seasonality, supply chain or operational disruptions and competitive dynamics are all challenges to effective cash management.  Even growth can stress the best run companies. Staffing, overhead, equipment, supplies and payment terms can drain cash reserves quickly.

At CFO Strategic Partners we work with each company to review business dynamics and cash positions to come up with a tailored solution that supports company objectives.  We aim for a combination of peace of mind and returns based on each company’s outlook and cash position.

CFO Kevin Lowdermilk gave these starter tips to help companies better manage their cash position.

1. Don’t count on accounts receivable to save payroll. It is important to build a cash strategy with a minimum of two payrolls in cash reserve so you are not sweating to make payroll. Timing of receivables is unpredictable, payroll is not.
2. Don’t forget tax obligations. Understanding and planning for tax obligations is a critical element to good cash management. All too often, companies over estimate discretionary cash because they fail to forecast tax requirements.
3. Don’t be the bank. Tightly manage the payment terms that you extend to customers, particularly as you grow. Before negotiating payment terms or accepting large orders, forecast the cash flow implications and leverage that forecast in your contract discussions.
4. Safely leverage your cash. Once you have built a cash cushion, safely leverage your cash. While we do not recommend market investments with company cash, having money in an FDIC insured money market account can have a significant impact on the bottom line. The principal is secure, you have immediate access to the cash if necessary and there are no penalties for moving money in and out of the account.

At the end of the day, careful cash planning and management is critical to running a successful operation.  Getting it right will ultimately provide ownership with the ability and the peace of mind to confidently take that next distribution.

At CFO Strategic Partners, we help companies find the right cash strategies for their businesses – everything from quality forecasting to helping companies manage cash, make payroll and have a solid growth plan. After all, at CFO Strategic Partners, we are all about enriching lives, and when companies have the funds they need to meet their goals, we know we’ve met ours.