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June, 2013

Cash Flow: It's Dynamic, Not Static

From the time a cash flow report is produced until it is reviewed, it is inaccurate. It may be accurate enough for decision making when it is produced but it ages quickly. Each business day (or hour) changes the numbers on the report and consequently your cash flow position. Effective management of cash flow will directly impact the working capital that your business needs to conduct business and to successfully work with unexpected business conditions.

To deal with this dynamic report condition, it is important to understand what impacts your cash flow position. This means that you not only have to know what transactions impact your cash flow but also the timing of those transactions and the business processes from day-to-day, week-to-week and month-to-month.

Balancing Cash Flow
Cash flow is affected by disbursements (cash out) of cash for paychecks, materials, rent, loan payments, taxes, etc. and by receipts (cash in) of cash from customers, interest, customer prepayments, etc. Each of these cash events occurs at different times and in varying amounts, so the balance of inflows (cash in) and outflows (cash out) do not consistently balance each other. In total, for a given period, inflows may exceed outflows. The result is dependent on the timing, if your bank account is low and outflows exceed inflows, you may not have enough cash to cover your cash out requirements.


Consider two examples:
Example 1 - A company with a beginning cash position (blue line) of $50,000 on day 1 faces two payrolls of $30,000 on day 14 and 28, scheduled payments to . . . read more.

Mike Brice
Phone: (206)226-1617

Feature Article

As the economy picks up businesses that have been operating off of a tight cash flow position may need a short term loan to enable them to increase inventory, hire a few people and/ or enter new markets. Getting a loan may be problematic for many owners and this article explains some of the stumbling blocks that can be overcome with the proper planning. Lending to small businesses still remains weak so be on top of your game when you apply for a loan.

The value of this article is further enhanced by some of the comments by readers that have offered their own experience.

Key points to consider when applying for a loan.:

  1. Improve your companies' credit rating..
  2. Apply to a bank that is likely to approve your application.
  3. Make sure your companies' finances and credit ratings are solid.
  4. Cultivate a relationship with a banker who will be sympathetic.
  5. Find out what is in your business credit report.
  6. Understand what the application process is..
  7. Develop a formal business plan that explains how you will spend the money you want to borrow.
  8. Understand the lending philosophy of the lending bank - loan secured by assets or good cash flow.
  9. Loan research: Schedule information meetings on loan application with several banks and read up on the same banks on the internet.
  10. Executive summary.

Read the full article for more information on why you should take the initiative and prepare for the loan application process for your business.

Click here to read the complete article.

Also, read "Win-Win Banking Relationships" for more information on developing a relationship with a bank.

Note: Ask yourself the following questions.
  • Do you have a formal business plan for your business?
  • Do you have a loan strategy?
  • Do you have one or more banks where you have established a relationship?

If you are looking for guidance on developing a business plan contact Mike to learn about the Business Planning services available from Brice Consulting for you and your organization.

Management Resources
Balance Sheet and Income Statement: Khan Academy unravels the mystery of two major accounting reports for management.
Balance Sheet and Income Statement Relationship (3:40 min)

Cash Flow: Khan Academy explains how to use a cash flow statement to reconcile net income with change in cash.
Cash Flow Statement (3:44 min)

Reporting Systems: Rob Bloomfield is Professor of Accounting at Cornell University's Johnson School briefly discusses the relationship between reporting systems and ethical behavior.
"Reporting Systems Can Lead to Ethical Shenanigans" Management Reporting: Systems and Strategies (2:22 min)

Business Goals: Setting a goal for your business can be valuable - but usually isn't. I thought I was the last person on earth to learn how to make goals useful, but in a recent business planning seminar, people started taking notes furiously as I mentioned how goals can add to company profits. In case you, like me, are late to learn this, here’s the lesson.
Setting Business Goals: It Doesn't Have To Be A Waste Of Time

Business Processes: At implementation, too many organizations depend on CRM software vendors to supply needed business processes. This logic makes no sense.
Business Processes Must Precede Technology

Partnerships: The adage that two brains are better than one may explain why a lot of entrepreneurs and small business owners, including me, create partnerships. However, it's not just those brains that should work well together. Partners' personalities need to get along too.
5 Lessons for Strong Business Partnerships

KPI: When you know how to measure your performance, you hold the key to knowing how to drive a more successful accounting business.
The Keys to Success

Marketing: Web analytics and general knowledge of digital marketing key performance indicators (KPIs) have come a long way since the days when people were measuring “hits” on a site.
8 KPIs Your Content Marketing Measurement Should Include

Customers: You may have a product and a marketing plan and a sales strategy. But if your whole foundation is built on assumptions and guesses, you may not generate the volume of customers you expected.
Two Ways To Drive Your Customers Crazy

Delegation: While most everyone in business would agree that delegation is critical to managerial success, how often are we dissatisfied with the results of what we've delegated? 
The Secret To Effective Delegation

Leadership: Bad leadership decisions arise from a lack of clarity about what’s true - either inside you or around you.
6 Reasons Leaders Make Bad Decisions - Boiled Down to 1.5

Government Contracting: The SBA brought together government contractors and entrepreneurs for nearly four hours of instruction in how small businesses can go to work for Uncle Sam.
6 Tips for Getting Government Contracts

Leadership: Great leaders don't need to struggle to motivate, inspire, and lead their employees. Here's why.
The Only Management Strategy You'll Ever Need

Advertising: Advertising executives admit the tide of ads is changing and online video ads taking the lead, new research has found..
Online Videos More Effective Than TV Advertising

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