8 Tips for Better Cash Management

Unlock capital, transform your bottom line and safeguard your future in uncertain times.

Tough times sometimes call for creative solutions. Mick McLoughlin, Global Head of Restructuring at KPMG and partner in the U.K. firm, says: “As the economy slows,[having more cash] could give businesses a competitive edge, so they may not have to do all the usual things firms do when they fear recession ?slash R&D spend, trim marketing budgets, lay off staff. In tough times, companies that generate cash are well placed to acquire at bargain prices.” In fact, there are simple steps that produce simple gains. Take a look at eight factors to consider as you focus on cash.
Lead like Warren Buffett. Good cash management can uncover hidden process inefficiencies across the business, but if you don’t get buy-in from every department, you will only find out about problems when they become too obvious ?and expensive ?to ignore. Warren Buffett’s businesses generate cash because he has made this drive part of their corporate culture. And remember, how well you manage cash is partly driven by the caliber of information at your disposal.
Think like a private equity firm. Typically, private equity firms spend the first 100 days of an acquisition estimating how much cash they can generate without hurting the business ?a strategy designed to improve working capital to grow the business’s value on a three to five year plan by tightening up on receivables or extending payment terms.
Choose your technology wisely. Treasury information systems help businesses draw on and study a wider range of data to forecast more accurately, improve financial reporting and make better decisions. But usability is key. If the system is so complex that your staff has to be reminded, cajoled and threatened to use it, you just waste money.
Learn the art of cash forecasting. Many companies turn to cash forecasting, but it is not a precise science because no company’s future can be foretold. Cash forecasting is more like a subtle art. But you can reduce the margin of error by making sure the appropriate stakeholders are engaged and held accountable for reviewing the accuracy of their inputs and documenting their assumptions.
Encourage brutal honesty. Cash forecasting correctly is hard enough. If staff feel obliged to manipulate data to fit head office preconceptions, it becomes impossible. Most staff members under-forecast, believing this to be cautious and appropriate, but if you’re too conservative you may fail to meet demand.
Supply chains can’t take all the strain. If you want to squeeze more cash out of your supply chain, don’t dictate terms and conditions to suppliers – instead, work with them. Putting the pressure on your suppliers could ultimately backfire by jeopardizing quality and production standards.
Less paper, more technology. Make the shift to electronic payments ?they speed delivery of money and, by paying promptly and electronically, you should be able to negotiate lower prices with suppliers. In 2000, one U.K. business found it was missing the chance to bill for U.S. $2.75 million of sales a day because it was posting proofs of delivery to clients. It soon switched to electronic versions.
Stick with it. Cash flow management isn’t a short- term fix for firms at risk; it can be the discipline that drives the growing value of a business.

? David Tolson and Chris Younger Managing Directors, CapitalValue in Denver
Source: Excerpts from CapitalEyes Newsletter and  KPMG Advisory’s Agenda magazine.

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  • http://www.cfowise.com/ Ken Kaufman

    Marty,

    These are great tips on cash management and the perspective every business owner should have when approaching their company. All business owners should read this!

  • http://www.networkmarketingsuccess.ws mlgreen8753

    Taking advantage of cheap online advertising over more costly offline promotion is another approach that small businesses seem to be leaning towards during these hard times.