Cash Flow

Planning, monitoring, tracking, and managing your cash flow and cash balance is always important. In an economic downturn this becomes, perhaps, your most important business management activity.

In this next addition to our Global Entrepreneurship Week series of “Back to the Fundamentals” business planning articles we look at The importance of cash flow during an economic downturn.

Take a look at all our Bplans Back to the Fundamentals contributions.

Tags: , "Back to the Fundamentals", backtofundamentals, business financials, cash balance, Cash Flow
Posted on November 19th, 2008 | No Comments »

Our part of Global Entrepreneur Week got off to a rousing start this Monday morning with Palo Alto Software’s founder and president Tim Berry conducting a Webinar on “Back to Fundamentals” of business planning.

One of the points Tim stressed to the 600+ webinar registrants is the importance of managing the cash flow of your business. You can be profitable, and still be broke.

One of the FREE online business tools we provide here at Bplans is a Cash Flow Calculator.

Here’s a short article explaining how to use this tool, right now, real time, to better plan and manage your business.

Steve Lange
Senior Editor
Palo Alto Software

Tags: cash, Cash Flow, cash flow calculator
Posted on November 17th, 2008 | 3 Comments »

On their Small Business page CNN.Money.com has published some interesting stories on small businesses in the U.S. who are feeling the credit crunch and how they are responding.

One page has a series of vignettes of small business efforts to cope. Business owners discuss many problems and solutions from moving their business locations, late accounts receivables, stunted growth, evaporating markets, to loss of lines-of-credit.

A longer article also discusses the problems businesses are facing in the current credit freeze. One family business was forced to close, another small business found local funding when big banks balked, and still another has had to turn away sales because no bank will fund their facilities expansion.

For many years home equity provided start-up and working capital for millions of U.S. businesses. In Hurdle: The Book on Business Planning, President and Founder of Palo Alto Software Tim Berry says:

Why do we say that banks are the most likely source of small-business financing? Because small-business owners borrow from banks. A great deal of small-business financing is accomplished through bank loans based on the business owner’s personal collateral, such as home ownership. Some would say that home equity is the greatest source of small-business financing.

However, this may no longer be the case as another article on CNN Money discusses how home equity as a source of small-business financing has recently changed.

All of this points out how absolutely necessary it is for business owners to focus on their planning processes every single month in managing their companies’ cash flow.

Steve Lange
Senior Editor
Palo Alto Software

Tags: , Cash Flow, credit, financing, loans
Posted on October 27th, 2008 | 2 Comments »

Good, solid, well-thought-through cash-flow planning just became all the more important. The New York Times reported in a 28 July 2008 article, Worried Banks Sharply Reduce Business Loans, how banks nationwide have clamped down on loans and lines of credit to businesses.

“Financial industry executives say tighter credit from major banks represents a swing back to a realistic assessment of risk, after years of handing out money with abandon,” says the NYT. This new aversion to lending to businesses is putting a damper on the expansion and growth of business and industry alike.

Here’s where realistic cash-flow planning proves its worth. With it, businesses can moderate their yearly goals, adjust their accounts receivable and payables, keep tighter inventory control (such as just-in-time ordering), and weather the current financial storm without having to borrow money.

With a history of well-documented planning, correct accounting, and plan vs. actual analysis, coupled with well-considered course adjustments, a business which does need to borrow can overcome the reticence of newly risk-averse banks.

Without realistic cash-flow planning, you can be a profitable, successful business and still be bankrupt.

Business Plan Pro, published by Palo Alto Software, is the tool for planning and managing your business’ cash-flow. Use it to sail the stormy waters of this tempestuous economy. And if your planning process shows you will need to borrow money, Business Plan Pro can produce the plan and report documents you need to successfully navigate the reefs and shoals of bank financing. Show them that this is a planned part of the voyage, not just a desperate cash-dash to any port in the storm.

Steve Lange
Senior Editor
Palo Alto Software

Tags: , banking, business planning, Cash Flow, financing, loans
Posted on August 19th, 2008 | No Comments »

One of Palo Alto Software’s most popular websites is www.bplans.com website, on that free resource website you can find hundreds of articles on a wide array of business planning information from starting your business to incorporation and buying a business.

We also have a page full of extremely helpful business calculators.

One of our most popular calculators is the Cash Flow Calculator.

Many startups and small businesses fail despite being nominally profitable. When it is time to pay the bills, cash is king. This handy calculator helps you see the effect of sales, inventory, credit terms, and other variables on your company’s cash flow.

‘Chelle Parmele
Social Media Marketing Manager
Palo Alto Software

Tags: bplans.com, business tool, calculator, Cash Flow, free
Posted on June 24th, 2008 | No Comments »

About a year ago, Kongo Gumi, a Japanese temple building company and the world’s oldest continuously operating family business, closed it’s doors after 14 centuries of prosperity.

I’ve wanted to talk about this company ever since I read the article about it in April 2007. The company history is interesting not just because of its longevity but how the business consistently passed from generation to generation for 1,428 years.

There is a 10-foot 17th century scroll which traces the 40 generations back to the origins of the business, listing the sons, daughters and sons-in-law that worked in the family run business.

In the article, available at the businessweek.com website, the last president of Kongo Gumi, Masakazu Kongo (the 40th member of the family to lead the company) explained some of the keys to the companies success.

…the company’s flexibility in selecting leaders as a key factor in its longevity. Specifically, rather than always handing reins to the oldest son, Kongo Gumi chose the son who best exhibited the health, responsibility, and talent for the job. Furthermore, it wasn’t always a son. The 38th Kongo to lead the company was Masakazu’s grandmother.

The company, now under the managing control of the Takamatsu Corporation, continues to operate, but no longer with the guiding influence of the family who built the empire over 14 centuries.

‘Chelle Parmele
Social Media Marketing Manager
Palo Alto Software

Posted on May 30th, 2008 | 1 Comment »

I had a little disagreement with a palm tree in our rental car while we were on vacation in Hawaii.  First Day – what a bummer!  Then I remembered that if you rent a car with a Platinum VISA card , they have extra insurance coverage that is automatically included.  The application is conveniently online. I had to FAX in the paperwork from the rental agency and my primary insurance.  Within 2 weeks, I had a check that covered my deductible, and the “loss of use” charges from the rental company, and $100 of their admin fees.

This coverage would work for business travel, too, and every little bit helps the bottom line for any business.

Vie Radek
Controller, Palo Alto Software

Posted on May 6th, 2008 | 1 Comment »

BIG blog reader Jacqueline Emerson gave me a heads up on an interesting article in LA Times.

When times are good, too many small businesses take a lackadaisical approach. Sloppy practices may not be fatal to a small business when cash is flowing, but when times get tough, those same bad habits could open cracks that threaten the profitability or even the viability of a small company.

You can read the rest of the article by Cyndia Zwahlen on the LA Times website.

‘Chelle Parmele
Palo Alto Software

Posted on April 1st, 2008 | No Comments »

(This is cross posted from my column on Entrepreneur.Com)

Cash flow problems can kill businesses that might otherwise survive. According to a U.S. Bank study, 82 percent of business failures are due to poor cash management. To prevent this from happening to your business, here are my 10 cash flow rules to remember.

1. Profits aren’t cash; they’re accounting. And accounting is a lot more creative than you think. You can’t pay bills with profits. Actually profits can lull you to sleep. If you pay your bills and your customers don’t, it’s suddenly business hell. You can make profits without making any money.
2. Cash flow isn’t intuitive. Don’t try to do it in your head. Making the sales doesn’t necessarily mean you have the money. Incurring the expense doesn’t necessarily mean you paid for it already. Inventory is usually bought and paid for and then stored until it becomes cost of sales.
3. Growth sucks up cash.  It’s paradoxical. The best of times can be hiding the worst of times. One of the toughest years my company had was when we doubled sales and almost went broke. We were building things two months in advance and getting the money from sales six months late. Add growth to that and it can be like a Trojan horse, hiding a problem inside a solution. Yes, of course you want to grow; we all want to grow our businesses. But be careful because growth costs cash. It’s a matter of working capital. The faster you grow, the more financing you need. 
4. Business-to-business sales suck up your cash. The simple view is that sales mean money, but when you’re a business selling to another business, it’s rarely that simple. You deliver the goods or services along with an invoice, and they pay the invoice later. Usually that’s months later. And businesses are good customers, so you can’t just throw them into collections because then they’ll never buy from you again. So you wait. When you sell something to a distributor that sells it to a retailer, you typically get the money four or five months later if you’re lucky.
5. Inventory sucks up cash. You have to buy your product or build it before you can sell it. Even if you put the product on your shelves and wait to sell it, your suppliers expect to get paid. Here’s a simple rule of thumb: Every dollar you have in inventory is a dollar you don’t have in cash.
6. Working capital is your best survival skill. Technically, working capital is an accounting term for what’s left over when you subtract current liabilities from current assets. Practically, it’s money in the bank that you use to pay your running costs and expenses and buy inventory while waiting to get paid by your business customers.
7. "Receivables" is a four-letter word. (See rule 4.) The money your customers owe you is called "accounts receivable." Here’s a shortcut to cash planning: Every dollar in accounts receivable is a dollar less cash.
8. Bankers hate surprises. Plan ahead. You get no extra points for spontaneity when dealing with banks. If you see a growth spurt coming, a new product opportunity or a problem with customers paying, the sooner you get to the bank armed with charts and a realistic plan, the better off you’ll be.
9. Watch these three vital metrics: "Collection days" is a measure of how long you wait to get paid. "Inventory turnover" is a measure of how long your inventory sits on your working capital and clogs your cash flow. "Payment days" is how long you wait to pay your vendors. Always monitor these three vital signs of cash flow. Project them 12 months ahead and compare your plan to what actually happens.
10. If you’re the exception rather than the rule, hooray for you. If all your customers pay you immediately when they buy from you, and you don’t buy things before you sell them, then relax. But if you sell to businesses, keep in mind that they usually don’t pay immediately.

– Tim

Posted on December 4th, 2007 | 4 Comments »

Jeff Cornwall writes a blog post about collecting receivables, which makes me itch to post about planning for cash flow. I am afraid that I might sound like a broken record… but CASH IS KING.

While you can certainly look into companies or tools that help you collect receivables to keep the cash flowing into your company, I think its even more important to plan your business and understand your financials so that you see the big cash picture. Play around with our BPLANS.COM cash flow calculator – it can give you some really good insight into what a VERY large order might do to your cash flow. But more importantly, set up your forecast, and build receivables into it. If it takes, on average, 60 days for your customer to pay — you CAN deal with it — as long as you know it. Once you establish a history a bank WILL give you a credit line based on your receivables.

So people – stop, listen, and PLAN. You will sleep better at night understanding where the money is, and when its getting into your hands.

-Sabrina Parsons, aka, Mommy CEO

Posted on September 27th, 2007 | 1 Comment »