Hyper-growth can really stretch your cash resources. Investments are being made at a very fast pace and lead times open up fast between cash received and cash paid out. At a technical level the accountants call it overtrading. An entrepreneur calls it – when the s hits the fan. Losses don’t kill businesses but of course a lack of cash surely will, eventually. The key to staying on top of your cash balances is the ability to predict the future! Of course costs are much easier than cash received from customers. These tips will not stop a business going under but they will give you more options to execute in a timely manner to survive the cash crunch.

Cash Management Tips
  1. Build a cash flow forecasting model that builds from daily events. A week is a long time in cash balance health. Ensure that daily and weekly policies/tactics that you are deploying are trapped in the cash flow assumptions. It’s so easy for decisions being made on the run to become disconnected with the cash flow forecast.
  2. Cash Fraud:  Split responsibilities of opening checks from customers; from recording in the books; and from depositing in the bank. Ensure the bank reconciliation is done daily/weekly and then go check it on a random basis. If it’s out by 10 cents that could be $100,000.10 out one way and $100,000 out the other way. In other words it’s out. It doesn’t reconcile. Go investigate!
  3. Trends over time are much easier to see from graphs. Graphs need to be clearly labeled and their meaning understood by a 7th grader.
  4. 70% of businesses that go bust are forecasting profits for the three months post going bust.
  5. Trailing 12 graphs are powerful visual tools that extract the distraction of seasonality.
  6. In almost all occasions if metrics look interesting their wrong.
  7. A cash flow and a profit & loss are merely the difference between your two balance sheets produced at the beginning and end of a time period.
  8. Measuring the reliability of forecasts improves the reliability of forecasts.
  9. Credit Control Department Tactics:
    • Build a conservative approach into your assumptions on Accounts Receivable. Ideally pencil in specific receipts to specific days.Ensure all customers are clear on your terms of trade.
    • Ensure you have a query/problem resolution system in place to resolve billing problems             quickly. Lost Revenue Factor – Large companies are cash hoarding. Cash balances as a % of total assets are at the highest level since 1963! Guess what – that is reflected in your accounts receivable days being dire. It is not uncommon for a $100,000 sales invoice to be held up for payment by a $1000 query. One little line item screwing up $99,000. Lost revenue factor $99,000. Don’t let it happen to you. Build a robust query resolution system to ensure the smooth collection of funds.
    • Build a cash forecast rolling out 4 months based on receipts expected from each customer. Ensure that all promises made by customers are placed in the cash flow forecast by date.
    • Look down on the next 4 months and set a monthly cash target to be received. Revise it quarterly.
    • Measure performance against target and reward achievement of target with kickers for better than target performance.
    • Graph performance on the White Board for public display. 2 Graphs – one to show cash achieved against target and another graph showing Accounts Receivable against 30 days (or average terms of trade). Watch the team don’t get too keen eg AR days dropping below 30!.
    • Manipulation of Accounts Receivable – Take a random selection of sales invoices and follow the cash  receipt through the system all the way to the bank statement. The actual bank statement. Take one customer and do this for all transactions covering the last 6 months.
  10. Manipulation of Accounts Payable – Take a random selection of  original supplier statements and match these to the balance outstanding in your books.
  11. Fabrication of Sales Pipelines – Take 3 prospects in each sales persons pipeline and call them as a quality control check. Use the excuse that you are calling to ensure we are understanding their needs and that we are acting with sufficient urgency!
  12. Sales Dropping Caused by Hidden Discounts – Watch for deals being closed with hidden discounts. A great Purchase Order has arrived for $95,000. (yes well it was actually $134,000 deal with a $39,000 discount but you will never know) Randomly check your sales  invoices to your sales prices. Discounts given comprehensively over time, covertly, can destroy business models and cash.
  13. Sales Forecasts Never Arrive – Trap and expose the credibility gap by deploying the Common 5. Take a few of your under performing sales team, compare this months 6 month sales forecast with last months version and hey presto you have the Common 5, 5 months to compare one forecast with another. Relentlessly measuring this metric makes people better at forecasting.
Develop a sense for what a safe bank balance feels like, based on your burn rate. Remember you can be making profits and losing cash.