1. © Mark T. Schenkel Cash Flow Management Dr. Mark T. Schenkel ETP 3700

2. © Mark T. Schenkel2 Cash Flow “Cash is King” Life blood of business Cash flow related financial reports are most important (even more important than Income Statement) Understand cash versus accrual

3. © Mark T. Schenkel3 Figure 9-1 Example of Cash Flow Cycle Over the Life Cycle of a Business Profits Cash flow Start-up to Early StageGrowth StageMaturity 0

4. © Mark T. Schenkel4 Reasons for Cash Flow Problems Difficulty in collecting receivables (example) Seasonality of sales (example) Unexpected variation in sales Policies on how payments are made to suppliers (example) Large expenditures up front for customer projects Capital projects Ineffective inventory management

5. © Mark T. Schenkel5 Measuring Cash Flow Cash Flow from Operating Activities Cash Flow from Investing Activities Cash Flow from Financing Activities

6. © Mark T. Schenkel6 Bleed Rate In periods of negative cash flow, entrepreneur must measure and understand the “bleed rate” of the venture Bleed rate = monthly negative cash flow Understand source of bleed  If business has operating bleed focus on time to operating break-even  If business has operational positive cash flow, keep overhead and new fixed costs to a minimum until overall positive cash flow is achieved

7. © Mark T. Schenkel7 Time Out of Cash Cash on Hand + Cash Available from Financing Sources TOC = _____________________________________________ Monthly Bleed Rate Typically Measured in Months (sometimes in weeks or days) Gives time measure of cash remaining

8. © Mark T. Schenkel8 Extending Time Out of Cash Decrease bleed by cutting costs Decrease time to break-even by accelerating sales growth If pricing is inelastic, price increase possible Raise more money….

9. © Mark T. Schenkel9 Managing Cash During Inflation Keep overhead low – Did I mention that Cash is King?? Build cash reserves to buffer short term price increases that precede higher prices on your part Watch your margins carefully. Worry about growing profits, not sales

10. © Mark T. Schenkel10 Managing Cash During Inflation Don't lock into long-term contracts that have narrow margins with large customers When inflation heats up even a little, be aggressive with frequent small price increases rather than waiting and trying to catch up at some point with one big jump Pay down variable interest loans ASAP to avoid interest rate hikes in the future