During October 2010, Dr Liam Bastick, Director of Corality (Melbourne) was invited to present a series of seminars in financial modelling, as part of the CPA Congress, which was held in New South Wales, Queensland and Tasmania.
Presentation: Cash flow management for critical decision making
“Cash is King – especially after a recession! In this seminar, I discussed the pitfalls of concentrating on one or two financial statements at the "expense" (pun intended) of the third - typically, the cash flow statement. I went through the why's and wherefore's of weekly cash flow forecasting.” - Liam Bastick
Importance of cash flow
The major goal of a business is not to make a profit, but to receive the underlying cash. It is not enough to just focus on increasing sales and improving profit margins – it is essential to understand the techniques in forecasting and managing cash flows in order to develop cash management policies to ensure cash flow follows the increases in sales.
Presentation snapshot
This presentation is about cash flow management within the context of critical business decisions and the flow of cash throughout the four units comprising the business structure:
- Physical
- Operational
- Responsibility
- Financial
Various cash flow management techniques were discussed during the presentation, with a focus on proactive techniques, including:
- Cash discounts and price incentives
- Inventory management
- Lease versus buy
- Refinancing and capital structure
The following reactive techniques were also examined:
- Accounts payable
- Credit collections
- Supplier negotiations
- Vertical integration
Modelling Forecasts
Cash flow problems identified and discussed:
- Failure to plan for market volatility
- Tying up capital in stock and equipment
- Buying long term assets out of current cash flow
- Collecting accounts receivable too slowly
- Failing to put excess cash to work
- Overtrading
Key findings
Make sure to:
- Understand the importance of cash flows, and the internal and external factors that impact
- Apply appropriate cash flow management and forecasting models
- Be aware of the common cash flow problems.
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