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Reduce Receivables- Stretch Payables But Don t Wreck Your Credit

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Reduce Receivables- Stretch Payables But Don t Wreck Your Credit

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    1. Reduce Receivables- Stretch Payables But Don’t Wreck Your Credit Greg Bergman, Small Business Development Center Bruce Peck, SCORE-Counselors to America’s Small Business Chris Robinson, Askegaard & Robinson ASKEGAARD &ROBINSON, P.A.

    2. Reduce Receivables- Stretch Payables But Don’t Wreck Your Credit Profit and Loss Statement Balance Sheet Cash Flow Most people focus on P&L statement when trying to improve the business. That is good. In previous sessions speakers talked about increasing revenue and reducing costs In this session we are going to discuss the balance sheet and how changes to the balance sheet affect a businesses cash flow In tough times it is cash which helps the business survive. You can have sales, you can have profits but if a business does not have cash it cannot survive.Most people focus on P&L statement when trying to improve the business. That is good. In previous sessions speakers talked about increasing revenue and reducing costs In this session we are going to discuss the balance sheet and how changes to the balance sheet affect a businesses cash flow In tough times it is cash which helps the business survive. You can have sales, you can have profits but if a business does not have cash it cannot survive.

    3. Reduce Receivables- Stretch Payables But Don’t Wreck Your Credit Cash is King Cash is King Cash is King You have heard the addage in business, especially retail, location location location. It should be cash is KingYou have heard the addage in business, especially retail, location location location. It should be cash is King

    4. Reduce Receivables- Stretch Payables But Don’t Wreck Your Credit Why is Cash important It is used to pay bills It is used to pay employees and taxes Provides a chance to take advantage of opportunities Provides you with the opportunity to obtain additional cash

    5. Reduce Receivables- Stretch Payables But Don’t Wreck Your Credit Two ways to have more cash Bring more in Keep it from going out A most enlightening slide, the one thing you want to learn todayA most enlightening slide, the one thing you want to learn today

    6. Reduce Receivables- Stretch Payables But Don’t Wreck Your Credit Balance Sheet Assets Liabilities Owners Equity Assets, what you own, they are cash or use cash now but can turn to cash in the future, liabilities, what you owe, they are a past/current source of cash but a drain on future cash. Owner Equity can be both a source and use of cash.Assets, what you own, they are cash or use cash now but can turn to cash in the future, liabilities, what you owe, they are a past/current source of cash but a drain on future cash. Owner Equity can be both a source and use of cash.

    7. Reduce Receivables- Stretch Payables But Don’t Wreck Your Credit Accounts Receivable- Asset Accounts Payable- Liability

    8. Reduce Receivables- Stretch Payables But Don’t Wreck Your Credit Make a Sale-$850,000 Average days to collect is 30 days Accounts Receivable are $70,833 Sales terms. Net 30 2% ,10 Net 30 30 equals 40 When you make a sale and collect in 30 days it takes over $70,000 in additional cash all year long that you are paying interest on to cover that money. Machine Shop 37 days Production Machining (332721) 43 days Auto parts Mfg. (336399) 50 days Wholesale Toys and Hobbies 27 days Retail Furniture 0 days why, easy financing for customer Retail Electronics 28 days Newspaper Publisher 40 days CPA Firms 0-1mm sales 0 days; 1-3mm sales, 36 days; 3-5mm sales, 48 days ……25mm and over, 62 days Sales terms. Net 30 2% ,10 Net 30 30 equals 40 When you make a sale and collect in 30 days it takes over $70,000 in additional cash all year long that you are paying interest on to cover that money. Machine Shop 37 days Production Machining (332721) 43 days Auto parts Mfg. (336399) 50 days Wholesale Toys and Hobbies 27 days Retail Furniture 0 days why, easy financing for customer Retail Electronics 28 days Newspaper Publisher 40 days CPA Firms 0-1mm sales 0 days; 1-3mm sales, 36 days; 3-5mm sales, 48 days ……25mm and over, 62 days

    9. Reduce Receivables- Stretch Payables But Don’t Wreck Your Credit Increase sales by 10% Sales $935,000 Receivables go to $77,916 Receivables increase by about $7,000 or 10% Receivables increase by about $7,000 or 10%

    10. Reduce Receivables- Stretch Payables But Don’t Wreck Your Credit Instead raise collection time to 45 days Accounts receivable go to $104,795 An increase of $26,879 ! Can a business finance another $27,000 easily in today's marketCan a business finance another $27,000 easily in today's market

    11. Reduce Receivables- Stretch Payables But Don’t Wreck Your Credit Sales go to $765,000 Accounts receivables collection 45 days Accounts receivable $94,315 A $23,482 increase Even is sales decline about 10% , if collection time rises that’s almost another $23,500 of cash needed. Even is sales decline about 10% , if collection time rises that’s almost another $23,500 of cash needed.

    12. Reduce Receivables- Stretch Payables But Don’t Wreck Your Credit Accounts Payable can save cash in the short term Need to watch cost of carrying accounts payable Consider how critical vendors are Do not treat withholding trust accounts the same as your vendors!

    13. Reduce Receivables- Stretch Payables But Don’t Wreck Your Credit Assume cost of producing goods 50% Half COGS is material, half labor You pay in 30 days Accounts payable are $17,708 COGS @ 50% is $425,000 COGS @ 50% is $425,000

    14. Reduce Receivables- Stretch Payables But Don’t Wreck Your Credit Stretch those payables to 45 days Accounts payable to $26,200 You have $8,492 in additional cash Not a long term solution Remember when we just increased our receivables we used $26,879 in cash By stretching our payables by the same amount we gain “only” $8,500 in cashRemember when we just increased our receivables we used $26,879 in cash By stretching our payables by the same amount we gain “only” $8,500 in cash

    15. Reduce Receivables- Stretch Payables But Don’t Wreck Your Credit Using accounts payable to preserve cash is only a short term solution. Managing accounts receivable well is very important to maintaining the cash position of a business Next we Bruce will talk more about how that is done.

    16. Reduce Receivables- Stretch Payables But Don’t Wreck Your Credit Greg Bergman, Small Business Development Center Bruce Peck, SCORE-Counselors to America’s Small Business Chris Robinson, Askegaard & Robinson ASKEGAARD &ROBINSON, P.A.

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