1 Cash Flow Management The man who does things makes many mistakes, but he never makes the biggest mistake of all – doing nothing. -Benjamin Franklin Sam Thacker Office Business Finance Solutions Creating Cash Flow for Small Businesses

2 About Business Finance Solutions  Financial consultants and brokers.  Over $400 million in loans originated.  Working Capital, Real Estate, Import-Export, Equipment, Governmental Contract Finance.  20+ years business experience. Leslie Thacker Sam Thacker

3 Sam Thacker – Business Articles Visit my small business finance articles on the Internet's #1 information resource for small business owners.small business finance articles 3 times a week Business finance articles are also appearing on the online websites for: The San Francisco Chronicle The Washington Post CBS News Business Week

4 Goal of Presentation 1.Provide a strong understanding of EBITA and cash flow and what components make up cash flow. 2.Have each participant leave today with knowledge of various ways of managing their cash on a day to day basis.

5 Cash Flow Management  Three Basic Concepts Cash = spending power It is sometimes necessary to accelerate collection of receipts and decelerate payments Minimize current assets and maximize current liabilities

6 Cash Flow Warning Signs  Five Warning Signs of CF Trouble: Decreased Liquidity Missed Trade Discounts Late Vendor Payments Slow Collections Less safety cash in bank

7 The Cash Flow Cycle PURCHASES CASH INVENTORIESSALES RECEIVABLES

8 EBITA Earnings Before Interest Tax Amortization

9 EBITA Defined Sales - Cost of Goods Sold = Gross Margin - SG&A Expenses = EBITA

10 Cash Flow Components EBITA, or earnings +/- Changes in A/R +/- Changes in Inventory +/- Changes in Net WIP +/- Changes in Fixed Assets +/- Changes in A/P +/- Changes in Accruals +/- Changes in Debt = CASH FLOW

11 Real World Example Cash Flow 1 2 Cash = spending power

12 A/R Turnover Calculation Total A/R / Average Daily Sales = A/R Turn in Days

13 Increasing A/R Collections  Reduce the # of days A/R outstanding improves CF.  Ultimate risk of collection is decreased as days outstanding decrease.

14 Lengthening A/P Average Time  Slow down payables, improve CF  Negotiate current liabilities into notes payable improves CF.  Increases risk of vender COD.  Decreases discount leverage with vendor.

15 Communication with Key People  Make sure your critical vendors and key employees understand that cash flow is tight and you are working to improve it. Share your plan!

16 Create a Cash Flow Forecast  A cash flow forecast will assist you managing through the period of tight cash.  A good (free) cash flow Excel based cash flow forecast with directions can be downloaded here:

17  Make sure you know your true cost of sales or cost of goods sold (COGS)  Make sure you know what your true gross margin is  Try as hard as possible to pass along any supplier / vendor price increases to your customer “Gottchas” to Remember

18 “Gottchas” to Remember  Never, ever, ever use the IRS as an unauthorized lender File 941 tax reports on time Pay 941 taxes on time  Monetary penalties are very high for: Failing to file 941 tax returns on time Failing to pay tax on time

19 “Gottchas” to Remember  If your business is subject to collecting sales tax File quarterly sales tax reports timely Do not fail to remit sales tax collected on time  Though the IRS is slower to catch you then the State sales tax collectors, the Comptroller’s actions are swift and sure

20 “Gottchas” to Remember  Once a year, chartered entities must file a Public Information Report with the State Comptroller’s Office It contains very basic information about the company Failure to file this report on time will result in the forfeiture of your charter

21 Questions and Answers Business Finance Solutions