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Managing Cash: A Startup’s First Financial Priority

Managing Cash: A Startup’s First Financial Priority. “cash and no profits is better than profits and no cash”. Financial Reporting vs. Managerial Accounting. CFO. Treasurer. Controller. Planning & Budgeting. Credit Inventory Investments External reporting. Accounting Cost Audit

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Managing Cash: A Startup’s First Financial Priority

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  1. Managing Cash:A Startup’s First Financial Priority “cash and no profits is better than profits and no cash”

  2. Financial Reporting vs. Managerial Accounting CFO Treasurer Controller Planning & Budgeting • Credit • Inventory • Investments • External reporting • Accounting • Cost • Audit • Internal reporting DKH Enterprises, Inc. Business Advisors

  3. Cash Management • Determine working capital needs • Sources of cash and policies/timing of receipts • Uses of cash: • Inventory conversion cycle – time cash tied up/supplier terms • Selling and marketing costs • Overhead costs • Timing/policies for cash payments • Develop a Cash Budget • Accelerate cash conversion process DKH Enterprises, Inc. Business Advisors

  4. Developing a Cash Budget • Determine the way in which cash flows through the business • Build a model that incorporates realistic assumptions about how your business really works • Track actuals to budget frequently in order to respond in an effective timeframe • Build flexibility to adjust assumptions as business experience changes DKH Enterprises, Inc. Business Advisors

  5. Sources & Uses of Cash • Sources of Cash; • Cash from Sales • Cash from Debt or Equity • Cash from Investments • Uses of Cash: • Buy and convert raw materials • Sell products • Pay bills for overhead • Long-term: pay off debt; expand (new products); contingencies DKH Enterprises, Inc. Business Advisors

  6. Cash from Sales • % accounts receivable (AR) paid in cash (credit cards, wire transfers, etc.) • Credit terms • % AR paid in 15, 30, 45, 60 days and so on • Isolate large account experience • % bad debt DKH Enterprises, Inc. Business Advisors

  7. Cash Needed for Operations • Cost of goods • Supplier payment terms • Conversion costs: • Labor • Co-packer • Shipping • Warehousing • Cycle time • Selling costs • Travel • Trade events • Sales materials • Promotions and programs • G& A Expenses • Payroll • Rent/Utilities • Pay off Debt • Invest in product development DKH Enterprises, Inc. Business Advisors

  8. Increase Cash Flow • Speed Collections • Invoice ASAP • Offer incentives for early pay/prepay • Accept credit cards • Deposit checks, then enter • Inventory and PO financing • Reduce Order Quantities/Cycle Time • Supplier lead-times • Transit times • Reduce finished goods inventory • Slow Payments • Negotiate supplier terms • Use credit cards or other credit facility DKH Enterprises, Inc. Business Advisors

  9. Cash Conversion Cycle • Inventory conversion • Days sales outstanding • Payables deferral • Cash conversion cycle: days to convert raw materials and to receive cash from customers DKH Enterprises, Inc. Business Advisors

  10. Cash Conversion Measure • Inventory conversion = Inventory/Sales per Day • Days sales outstanding = Accounts receivable/ • Sales per day • Payables deferral = Accounts Payable/ • Cost of Goods Sold/365 Cash conversion cycle = (1+2)-3 DKH Enterprises, Inc. Business Advisors

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