April 12, 2022 | CFO Posts

Improving Cash Flow

Many business owners focus on revenue and profits while not paying attention to arguably the most important number in their business – cash flow. Strong cash flow not only means that you can pay your obligations and keep the business flowing, but it also means that you have capital to invest in the growth of your company.

Rolling Cash Flow Forecast

In order to understand your cash flow at all times, your business needs to have a rolling cash flow forecast that is usually for 13-week periods. It will provide key information that your CFO can analyze to be able to impact the health and growth of your company.
The forecast will allow you to know, at all times, how much cash your business is generating, from where that cash is coming from, and when, specifically, it is received. It also tells you when you will need cash, and how much.
It will tell you when you will be able to meet obligations, thus reducing surprises, and when you will have cash to invest in growth initiatives.
With this information you will know in advance when you might need to obtain capital, for example from a business line of credit. However, more importantly, you can use this information in your strategic planning. Your overall goal is to grow the company, so you can create a growth plan by understanding when you will have cash to invest. You’ll know how much capital you’ll have and can determine where to invest those resources. You might want to implement new sales and marketing initiatives, expand your product line, or upgrade your existing products or services.
The cash flow forecast gives you the critical numbers that you need to build this plan and to modify it over time as you move forward.
Finally, your forecast will help you to analyze ways to improve your cash flow, thus allowing you more capital to implement your growth strategies.

Ways to Improve Cash Flow
Accounts Receivable

The faster you are getting cash in the door, the faster you can use it. Having accounts receivable as assets on your books doesn’t help you. There are several metrics involved in accounts receivable that can help you to improve your cash flow.

  • Days Sales Outstanding – Based on your payment terms, how long is it taking for invoices to be paid? It should be 30 days or less.
  • Average Days Delinquent – If you have too many delinquencies, it could indicate a problem with your collection processes. If you have certain customers who tend to be delinquent, you might want to consider if those are customers you want to have.
  • Cost Per Invoice – How much does it cost you to process and collect invoices? This is an opportunity to reduce your overall costs by improving your collection process.

By analyzing these and other metrics, your CFO can find ways to speed up cash coming in, as well as to reduce costs.

Accounts Payable

You can impact your cash flow by negotiating terms with your vendors so that you have adequate time to pay without additional fees so that cash is coming in faster than it is going out.
You also might consider automating your accounts payable process to reduce your operational costs.

Inventory Management

If you’re holding too much inventory, you have less cash in your pocket. Your CFO should analyze your inventory management process to determine your optimal inventory level. Of course, you want to be able to meet demand, but to maximize your cash flow, you can’t hold excess inventory. In some cases, you might also be risking inventory going stale.
It also might be beneficial to look at a pull rather than a push inventory system. That means that you order inventory on demand as you receive orders. If you can find suppliers or manufacturers who can fulfill your orders fast enough that you can still deliver products to your customers in a timely manner, you can drastically improve your cash position.

Cost Reduction

Your CFO can also do an overall cost analysis to find ways to reduce costs. This might involve investing in technology to automate certain systems and processes to improve efficiency. Many companies are investing in digital transformation in order to better facilitate remote workplaces, but also to reduce overall costs. It can make a huge impact on the company’s cash flow overall, giving you a healthy return on the technology investments you make.

Remote or Hybrid Options

Many companies are downsizing their physical spaces and creating remote or hybrid work environments, which can drastically reduce overhead costs, thus having a significant impact on cash flow. Of course, not all types of businesses may be able to consider this option, but if it is possible, it’s worth looking at. Remote and hybrid workplaces are here to stay, and they are what employees are seeking, so it could also help you to attract and retain talent.

C-Suite Impact CFO Can Help

Our CFOs have a wide range of industry experience and are dedicated to maximizing the short and long-term growth of your company. They bring a vast array of knowledge and experience to the table to work with you as a strategic partner and to help you achieve the success you deserve.
If you want to improve your cash flow and accelerate and maximize your company’s growth in an expertly managed but affordable way, contact us today to learn more.

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