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AcctTwo Blog

How Can I Manage Cash?

No matter the size of your company, there is nothing more critical than the ability to generate and manage cash. Cash is the lifeblood of the company; and the most critical factor in survival. Nearly 40% of startups fail because of financial challenges; and while that number certainly has the potential to grow with COVID-19, we want to share some practical cash management advice to not only weather this unprecedented time, but also put in place responsible cash management practices that will serve you well now and in the future. 

Responsible Cash Management should always include these three things:
  1. Knowing cash requirements every day of every week of every month
  2. Having a strategy to develop a reserve as soon as practical, especially when you do not have funding
  3. Understanding the underlying requirements to get a loan/line

These three things might seem obvious to many, however it is critical to understand that being profitable or generating income, because of the rules of accounting, does not necessarily mean you will always have cash available to pay your bills.

Why is cash flow forecasting so important?

Tyler Shoyer, from CBIZ CMF, joined us to share practical advice for cash flow forecasting and why it is so important. 

  1. Cash is king. Therefore, it is critical to maintain a near term view into liquidity to ensure the company has enough available funds to avoid disruption to operations.
  2. Cash flow decisions need to be rooted in a solid understanding of operational cash flow; run-rates do not cut it in changing times.
  3. Real cash flow is sensitive. Frequent forecasting will allow you to see if an issue coming down the road, and give you the insight to know which levers to pull, and when to pull them.

What are some good tips for managing cash?

You shouldn’t use the balance in your bank account to forecast cash or make decisions about your cash flow, below are four cash flow tips to follow.

  1. Understand your working capital
  2. Prepare a 13 week rolling cash forecast
  3. Differentiate between bank balance and book balance
  4. Consider seasonality

Number 2 is especially important. It is a best practice to create a 13-week rolling cash forecast and it can be a very granular exercise that takes every single receivable, payable, payroll pay cycle, known future expenses like subscription renewals or insurance premiums, and lays out the timing of them by week. Once configured, you can drop in your beginning cash balance, calculate the forecasted weekly increase or decrease in cash, and come up with a forecasted ending cash balance each week. This can be a very powerful tool for managing cash. 

Why do I need a cash reserve?

For earlier stage companies, it is not uncommon to have a large percentage of revenue coming from one or two large accounts. What happens if one of your larger customers is late with a payment, or worse, leaves? This is called concentration risk, and the risk is real.

Additionally, if the business is performing well, it will most likely need an increased amount of working capital to fund the new growth. While earnings will go up, immediate cash flow may not.  The last thing you want to do is limit your growth potential because you needed to delay service. For these reasons, and many others, you will always want to have some cash reserves available.

What does it take to get a business loan?

Rob Ruoti, AcctTwo’s CFO, talked about strategies to secure a loan from your lender. His advice is to think like a banker and prepare your financials with them in mind. One of the key things lenders are looking for when they review your financials is your organization’s ability to pay back the loan over the term of the loan. Specifically, what do your cash flow trends look like, how strong is your balance sheet based on key financial ratios and how will you be able to service the interest and principal payments. It is essential for you to provide lenders with financial information to be able to communicate that clearly. That means providing historical financial statements, 12–18 months rolling forecast and key financial metrics in a historical format so that lenders can see seasonality and trends. He also suggested producing financial data and metrics as part of your normal month-end close and building into a “virtual data room” so that the data room is constantly up to date and when lenders or investors request data it is business as usual rather than a fire drill to compile data in a certain format that they want.

How can you extend your cash in these unprecedented times?

Tyler Shoyer ended the webinar with his list of levers & considerations you can use to positively impact your near term cash position:

  1. Inquire about extending payment terms with your long-standing vendors
  2. Find out if any of your long-term customers would be willing to decrease their payment terms
  3. Explore the option to offer a prompt pay discount
  4. Take into consideration your float; should you change the day of the week for check runs; should you move away from check runs towards ACH or Wire transfers to delay the check date a few days
  5. Lastly – where possible, leverage sweep accounts to minimize interest expense or delays transferring funds

Watch The Webinar

We are so appreciative for our partnership with Tyler Shoyer, from CBIZ CMF, and truly value his insight. I encourage you to watch the full webinar. 

Responsible Cash Management

About CBIZ CMF

CBIZ CMF is a subset of CBIZ, a publicly traded professional services organization. CBIZ CMF specializes in advisory services for the middle market, helping clients and sponsors manage all aspects of the operations. 

Tyler personally specializes in the Strategic FP&A service line with a focus on bringing best-in-class finance practices to  clients. While the shape, or focus, of our work can take multiple forms - everything they do is centered around driving efficiencies and enabling data driven decision making in support of their client's investment strategies.


About Chris Grady

Chris Grady is AcctTwo's Managing Director. He is passionate about helping SaaS organizations achieve success by transforming Finance & Accounting into a growth enabler & change agent. Be it a cloud-based software solution, or outsourcing performed by AcctTwo's Managed Accounting Services team, Chris is dedicated to our customers' organizational longevity and their full realization of growth & vision. You can email Chris at cgrady@accttwo.com 

Topics: business climate business intelligence Best Practices Finance Transformation Startup Guidance