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I'm Chris Bintliff. I'm here with Tony Spina from Pro CFO partners. And today, Tony, I want to talk about cash flow a little bit and cash management. In a lot of organizations, I think that we've got a real sort of binary sense of what's happening with cash, either. We've got some enough coming in, or we've got enough going out. But I'm wondering what you think about the idea that, really, if we look at our cash situation, we can read between lines, we can see some of what's affecting the company, we can see some of maybe the dysfunctions that are happening inside of an organization by looking a little bit more acutely at what's going on instead of cash flow. Do you have some ideas about that?

Well, yeah, let me just start by saying well, dysfunctions, if you will to use that term that you use. Has they relate to cash usually shop and work with Capital Criss and specifically in receivables, inventory and payables. So you may have strong revenue numbers and you know, things are good that way. But your receivable balances are growing. And you know, the average time it's taking you to collect from your customers is being extended. That'll put that in and of itself will put a little stress on cash similarily with inventory, your inventory, maybe inventory balances may be going up. Your inventory is not turning quickly, it could be a lot of reasons for that on the product side or the operation side. And on the liability, side payables. I mean, that's what you owe people for, you know, for your inventory and other things, right expenses to run the business, you know, that at the same time could be going down. Meaning that perhaps you're not you're not taking advantage of your vendors credit terms, you're paying things a little bit too quickly. All these things affect cash and the idea is to turn your profits If you're asked us to cash quicker, and some of these things, if they get extended, you know, the average time it takes you to turn your profits to cash is taking too long.

Wow. So what is the, what's the relationship between? I don't have the right reports in front of me that are giving me all of that insight so that I can make smarter decisions. And I'm not measuring enough of that in real time. are most organizations doing one better than another? Or do you find that a lot of times when you're working with somebody, they weren't even thinking about some of these big things?

Well, let's address your first, your first point with regard to you know, what should I be looking at? I mean, I've often get the, for lack of a better word, the lament of the business owner, or, you know, or the CEO that, gee, I'm looking at my profit and loss statement and you know, I've got a profit, you know, my profits are relatively good, but my cash balance is going down. Why is that? Like I said, it's important to remember that a profit and loss statement is just looking at revenues incurred, revenues earned and expenses incurred over a defined period. It's not looking at things. The effects of balance sheet activity, if you will, on cash, the amount of money it takes the fund receivables, the amount of money being spent on inventory, doesn't take into account any payments you have on loans, or purchases of equipment or distributions made the partners or shareholders to pay taxes, whether these things flow through a profit and loss statement. So even though you may have you know, revenue and profits, the profits may that you're yielding may not be enough to cover things like that, causing a declining attacking your cash balance. a balance sheet, on the other hand, just looks at you know, a cash position as of a point in time. We know how valuable that is right? It changes tomorrow The next day, the day after that etc. etc. The third financial statement is a cash flow statement. And you'd be surprised at how many businesses do not generate cash flow statement as part of their monthly package. And a cash flow statement is where you're going to see exactly how your cash changed over a given period. You know how it moved, it's going to show you if your receivables went up, inventory went down, or inventory went up or down. The payments you've made, you know, on loans or credit cards or other other liabilities. And also distributions in any investments made and kept in capital expenditures is important. Remember, when you're looking at an income statement, you know, profit does not equal cash. And that's the purpose of the cash flow statement. businesses run on cash on a profits.

That's a really powerful statement and in my experiences, sometimes not taken to heart. So this cash statement, this cash flow statement is one of the key reports that a lot of companies are missing

is that that's berenstein

isn't it interesting. So this report could really help pave the way for a strategic perspective for the next several quarters or whatever is often not even in the mix. So what's your guidance for a business leader or for an executive to start putting together the right package without being too much, but the right insight, the right level of information so that I am making smart decisions with sound knowledge about what my cash position really is?

What you really want to look at is your cash conversion cycle. You know, how many days is taking you to collect your collect from your customers, how many days? How many days? Is your inventory outstanding? How many days is it taking for you to pay your bills, the net of those three, if you will, is what is your is your cash conversion cycle, how long it's taking you to convert your working capital to cash. So that's one thing you want to

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because any improvements they have Chris are going to have an immediate and drastic impact on on on your cash position for instance, with regard to collect a accounts receivable which is a good example, if you were to if a $10 million dollar business were to reduce their their average days as standing by even six days, you know how much that would yield improvement cashflow approximately, about $100,000 $100,000 $160,000

by six days,

six days, that's all you know, it's some of the other things a little harder to calculate like the effect of inventory, but they have similar effects on cash flow. And you know, timing is everything, especially when you know, for small to mid size business or maybe an escort for instance, you know, the cash is in the business and the cash is earning profits. But at the end of the year, or you know, soon thereafter, when it comes to pay the tax man, they need to take the money out of the business to pay the taxes. So it's critical that the cat the business have has enough cash in order for them to take in, you know, pay their personal liabilities. So that's often overlooked. But one other thing that's I mean, that we like I like to promote in any business whether it's if obviously becomes a little more important if your caches is is stretched if things are tight is the value of Cash Flow forecast. Okay, it's like driving a car. I mean, if you're, if you're going on a car ride you, you get in the car, you know where you you know where you've been, right? You get in the car, you drive it along, you know where you are, and ultimately you reach a destination. And, you know, you know where you're going. I mean, it's kind of similar with cash, you know, maybe how you started out and where you are right now, but it's, it's vitally important for even a healthy business to know, you know, what their cash position or cash needs, looks like, you know, on a go forward basis, you know, looking out into the future, you know, there's a lot that goes into a cash do a projection, but they're invaluable they can think and identify cash flow projection can identify stress points, Do I have enough cash to sustain a business, my business, or even though I have enough, you know, will I have enough cash to fund any growth initiative

really speaks to the, like, huge impact that small, seemingly small levers can have. And I imagine, you know, renegotiating vendor relationships or renegotiating, or restructuring some debt relationships or even how you're using revolving credit can have a huge impact small things that you might, you know, may not be the first thing jumps to mind can have a huge impact and what that cash projection can look like and on your ability to overcome maybe some of those, you know, the peaks and valleys that we all experience in business to have a stronger cash position going forward.

Right in the you know, the value in a cash flow projection. It's not It's not about being right. It's not a budget budgets a static, you know, budgets are something you produce perhaps once a year and you measure your results against where you expect it or hope to go whatever you want to look at. Okay with a value in a in a projection is a map. Can I put this value on a projection is it it gives you the ability, you know, to look ahead and paint a reasonable picture of what things are going to look like in the future and take, you know, take action, if you will to improve on if you see that and geez in four months, you know, I'm not going to have a cat and I have enough cash to pay my vendors What can I do about it? And how do I get more cash in here quickly? Is it simply a matter of improving my my collection days with customers getting them to pay quicker? Is it restructuring some of my payables? Is it buying less inventory, manage inventory a little bit of which is a whole nother you know, by topic. People manufactures people in manufacturing or people you know, even distributed knows inventory is always an area where there's a lot of opportunity.

And back to your analogy, you know, if I'm in my car and I've had flat, flat road with the wind behind me, my ability though to look ahead and say We've got some mountains coming up, our gas mileage is going to go down and it looks like there's stormy weather for the next three days. We should plan accordingly. Those are the things that we naturally do when we're trying to get from point A to point B. But often in business, we're only looking at what the past is telling us about. We're not doing enough to look as you say, the projections that are so essential to our growth,

right and with regard to cash flow projections, I mean, every business is different and depending on you know, what their health is, the frequency or you know, how long you want to you know, project out may change if, you know, if things are very tight, you know, I often recommend the short term cash flow forecast, if you will, which you know, typically be a quarter or 13 weeks. And you know, once you put that together, it doesn't just like I said, it's not static, it doesn't sit there. It's something that has to be updated, you know, regularly daily, usually weekly, but daily if necessary, because things change, right. The customer now is paying you You know, within, say 30 days, you know, for the last five years, you don't know what's next. And you might not know what's going on in his business, especially these days, right? With the pandemic. And you know, that may change if you're relying on one big customer to pay you quickly and something changes in his business that affects you. And now, all of a sudden, you know, you know, I'm not 30 days out of my largest customer, I'm 45, even 60. I don't have the cash reserves necessary, you know, to fund my operating activities, you know, on a standalone basis, then, you know, I have to make some adjustments.

This really speaks Tony to the value of the expert CFO who sees this stuff. Who understands it, who's seen it all before, this isn't new. This isn't. This is this is familiar and practiced. And I think for a lot of executives, who are hearing this and thinking, well, we're not doing this or this or this. It really grabs us in good guidance and advice that the right expert partner can just take some of that load off and help us have a more solid ground on on where we need to be with our own vision without being distracted by details that we don't understand. I think that's really powerful stuff. Tony Spina from Pro CFO partners. Thanks so much for spending some time with us today talking about cash projections and cash flow management, cash flow, fascinating stuff. really valuable stuff. And I think our audience took away a lot of practical tactical how to actionable stuff in this one. I really enjoyed it.

Well, thank you, Chris. And I'll just stand I think cash is everybody's favorite topic is

absolutely true. Everybody's favorite, or least favorite. It's true.

All right. Thank you, Chris. Have a good day.

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