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Gary Brooks: Managing Cash During Troubled Times (Part 2)


This is the second in a three part series of posts about managing cash when a business experiences a downturn. Part One focused on overall efficiency of workflow processes and how being efficient during good times can help mitigate the impact during bad times. Today's post will focus on banking and cash management.

Banking, Cash, and Bank Accounts 


  • Establish a good banking relationship early and regularly nurture it so that the banker becomes your partner. Give your banker bad news and good news immediately. Keep them in the loop and let them know that you are a good customer. If they understand the facts you are dealing with and your plan, they will often provide flexibility and advice to help as they have seen other customers go through the same challenges.
  • Create credit lines when times are good as insurance and flexibility to handle downturns. You may not even need the credit line at the time but it is easier to obtain than later when your business is stressed. 
  • Make certain that all bank accounts are reconciled early and regularly. With today’s treasury management systems, this can be an easy process. However, we have seen many companies neglect to perform these necessary activities timely.  

Cash Management

At least monthly during good times and at least weekly when cash is tight, forecast your cash flows in detail. The primary purpose is to provide an early warning signal of cash issues in the near future. The following is the normal process:

  • Existing Billings: Prepare an aging of accounts receivables along with an expected pay date for each customer.  Customers tend to pay on a very regular basis for their business. Most of the time from the contracts established, but not always. There are always some customers that pay early and others that always pay late. Analyze their habits and know when you can expect to be paid from each customer – at least each major customer. From this analysis, prepare an expected cash receipts for the next 1 to 8 weeks based on outstanding unpaid billings (or in some cases expected billings).
  • Planned Billings: From sales forecasts, backlog reports or just general knowledge of the business, schedule out expected cash receipts not currently in accounts receivable. This will typically not be for the first few weeks of the forecast, but should allow for longer term forecasting – say 8 to 20 weeks.
  • Short-Term Payables: Prepare an aging of payables along with typical payment terms for each vendor. Schedule out expected cash disbursements for payables the next 1 to 8 weeks based on existing payables (and sometimes purchase orders).
  • Longer Term Payables: From budgets, purchase orders, and general knowledge of the business, schedule out expected payments for the longer term – say 8 to 20 weeks. 
  • Cash Payments not in Payables System:  These regular weekly and monthly payments typically include payrolls and other employee benefit payments; utilities; rents; debt service; leases; and, in some cases, capital expenditures.
  • Other Known Factors: In some cases businesses have “lumpy” cash inflows and outflows. These can include such things as annual bonuses, annual or quarterly debt payments, and other special situations.  
Summarize the above data onto a schedule that prints on one of two pages so that decision makers can get a clear grasp of the cash situation. The primary purpose of the cash forecast is to provide an early warning signal of future cash crunches. If you know that you will have a shortfall 6 weeks from now, there are generally some actions that can be done to help resolve or postpone the issues.

The process efficiencies described in Part One and the cash management procedures above will help most businesses deal with cash shortages. However, sometimes, businesses experience downturns so severe that very aggressive action is needed. The next post will talk about what to do then. 

Posted by Gary Brooks
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