Managing Cash Flow
By Umaesh Khaitan, CEO
EcoDesign World LLC.
December 9, 2012
The 4 Wheels of a Business
Strategy
People
Execution
Cash
What is Cash Management?
 In its simplest form of money moving in and out of your
company’s bank account. That is the cash flow of your
business.
 Cash flow is the blood in the veins of your company. The
health of the blood is the primary indicator of business
health.
 Cash flow in tough times is more important than profit. The
effect of cash flow is real, immediate and, if mismanaged,
totally unforgiving.
 Cash needs to be monitored, protected, controlled and put
to work.
 Managing cash is more important than earning cash.
Why Cash Flow is Needed?
 As Management, you need to know whether the
organization will be able to cover payroll and other
immediate expenses
 Potential lenders or creditors, who want a clear picture
of a company's ability to repay
 Potential investors, who need to judge whether the
company is financially sound
How do you start with Cash?
 Starting a business has its challenges. Many business’
GOOB because of their failure to manage their cash
flow.
 You arrange for Cash in the following ways:
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Angel Investors
Friends & Family Loan
Bank Loan
Supplier’s Credit
Financing from Customers
Creating TRUST amongst all Stake Holders – Boot
Strapping
Advantages of managing
cash flow
 You should know where your cash is tied up
 You can spot potential bottlenecks and act to reduce their
impact
 You can plan ahead
 You can reduce your dependence on your bankers and save
interest charges
 You can identify surpluses which can be invested to earn
interest
 You are in control of your business and can make informed
decisions for future development and expansion
Cash Conversion Period
The cash conversion period measures the amount of time it
takes to convert your product or service into cash inflows.
There are three key components:
1. The inventory conversion period – the time taken to transform raw
materials into a saleable product. This is important for both
manufacturing and service industries. A manufacturer will have
funds tied up in physical stocks while service organizations will
have funds tied up in work-in-progress that has not been invoiced
to the customer.
2. The receivables conversion period – the time taken to convert
sales into cash receivables.
1. The customer credit period – Most commonly Net 30 Term
1. The payable deferrable period – the time between
purchase/usage of inputs e.g. materials, labor, etc. to payment.
Cash Flow Budget
The cash-flow budget projects your business cash
inflows and outflows over a certain period of time.
A typical cash-flow budget predicts cash inflows and
outflows on a month-to-month, weekly or daily basis.
Let’s look at a Weekly/Monthly Cash Flow Model…
(WE WILL NOW WORK TOGETHER IN AN EXCEL
SAMPLE CASH FLOW SHEET)
Things Not to Do
 Do not ever run your business without making a weekly
Cash Flow
 Do not ever buy equipment or any Capital Equipment
for your business from working cash in your company,
unless the purchase is funded from profits, equity or
loans
 Do not ever commit to pay someone with a promised
date without knowing exactly where the money is
coming from for that particular payment
Summary of Learning
 Looking ahead on your cash position gives you
the power to stay on top of your game.
 It gives you the power to plan and keep your
promises
 It gives you the power to make informed
decisions for future development and
expansion
 It gives you the power to build TRUST,
RELIABILITY and STRENGTH