Cash Power Checklist

Transcription

1 Cash Power Checklist Page 1 Use this checklist to determine: 1. where cash is hiding in your business, and 2. how to speed up its flow. This checklist is just the beginning. No checklist could comprehensively cover all cash generating possibilities for all businesses, but it s a good start. Bank Accounts What is the average amount in your bank accounts? $ What is the typical high balance in a typical month? $ What is the typical low balance in a typical month? $ Typically, how many times are your bank accounts overdrawn in a month? What amount of average balances do you need in your bank accounts to cover your average payments? $ (Unless you keep extensive, precise records of receipts and payments, you may have to do some educated guessing here.) Do you maintain reserve balances (extra money in your accounts) just in case? How much is that? $ Can you reduce your reserve balances? Smaller reserves? Use credit lines for reserves? Do you have excess bank balances? Typically, how much? $ Do they earn income for you? Do they pay for banking services? Do you monitor your bank accounts daily? Do you use bank services that improve your cash flow? Zero balance (daily investment) accounts Interest-bearing checking and business savings accounts Electronic banking Lockbox services Remote disbursement accounts Other accounts Have you discussed with your banker how the bank could help you improve your cash flow?

2 Accounts Receivable What is the dollar amount of your accounts receivable? $ Page 2 What percentage of your accounts receivable are: % current (zero to 29 days) % 30 to 59 days past due % 60 to 89 days past due % 90 days or more past due What is your average days receivable? days How much cash is released for each day you reduce your days receivable? $ What days receivable is acceptable? days (This is your goal.) How much cash will be released into your business when you reduce your days receivable to your goal? (existing days receivable - goal days receivable = # of days reduced.) Then calculate, (# days reduced) x ($ s per day). Can you do any of the following to reduce your accounts receivable? Inventories More aggressive collections More restrictive credit approvals (fewer sales on credit terms) More frequent review of accounts receivable to detect late-paying customers sooner Sell accounts receivable to a factoring company Other Identify (in dollars) each significant kind of inventory in your business and follow the checklist for each of them. What is the average dollar amount of the inventory? $ What is the days of inventory? days What dollar amount of cash is released by reducing the inventory by one day? $ Without compromising your ability to produce, how many days could you reduce this inventory? days How much cash would that release? $ Is just-in-time production a possibility? Can you redesign the operation to eliminate idle inventories (points in the operation at which materials and partially completed items sit idle )?

3 Equipment and Facilities Do you have a current inventory of the equipment, facilities, and real estate in your business? You should. It should indicate which items are owned and which are not owned, and for each owned item, its balance sheet value (acquisition cost less accumulated depreciation), and its approximate market value. What is the market value of the equipment owned by your business? $ Do you have any idle equipment or facilities that you won t need in the short- or midterm? If so, sell it immediately. What is the approximate market value of this equipment? $ Do you have any underutilized or obsolete equipment or facilities? Can you reorganize systems with underutilized equipment or facilities to eliminate some or all of it? What is the market value of items you can eliminate? $ Can/should you replace obsolete equipment or facilities? (Will the acquisition costs, less proceeds from sale of the old items, be justified by savings and/or productivity increases?) What are the up-front cash flow requirements of making such changes, and what are the ongoing cash flow results? Up-front net cash flow: $ (one time) Ongoing cash flow impact: $ (monthly) For big-ticket equipment and facilities, is it desirable to generate cash through a sale-andleaseback arrangement? Explore the possibilities with commercial finance companies. Approximately how much cash could be made immediately available through sale and leasebacks? $ What would be the monthly lease payments? $ Approximately what dollar value of growth or productivity improvements would be generated by the cash proceeds from the sale/leaseback? $ Would the monthly payments be justified by the growth or productivity increases funded by the cash generated? Can you outsource to third parties any operations that require equipment or facilities? Approximately what would be the dollar savings, if any, of using a third party to do this work? $ monthly Approximately how much cash could you generate by divesting your company of the equipment and facilities currently devoted to the work to be outsourced? $ Would the cost of outsourcing be justified by the one-time cash inflow plus the ongoing savings of operating costs? Page 3

4 Accounts Payable What is the dollar amount of your accounts payable? What is your average days of payables? days $ Page 4 How much cash is released for each day you increase your days of payables? $ What days of payables is desirable? days (This is your goal.) How much cash will be released into your business when you increase your days of payables to your goal? (days reduced x dollars per day of payables = $ cash released) $ Can you do any of the following to increase your accounts payable? Renegotiate agreements and terms with suppliers Make installment payments Make exclusive/long term arrangements in return for pricing or payment concessions Discuss possibilities with each supplier to generate ideas for stretching your payments. Debt What is the dollar amount of your short and long term debts (not trade payables)? $ Have you taken advantage of all internal sources of cash? Have you really taken advantage of all internal sources? Only then, consider increasing your loans and lines of credit. Revenues Are there opportunities for increasing your prices? Are there opportunities for increasing the velocity of your revenues (earlier payment, quicker payment) without disrupting customer relationships? Payment in advance Cash payment Reduced payment terms for trade receivables Accept credit cards and debit cards for sales Substitute credit card sales for trade credit or installment sales Use direct deposit or auto draft to speed payment Electronic payments

5 Expenses What are your typical monthly cash expenses (exclude non-cash expenses)? $ Are there opportunities to cut cash expenses? Do you have a systematic way to continually review operational systems and improve productivity, thus decreasing expenses and increasing the flow of cash? Can you downstream some work to customers, thus reducing your expenses? Can you increase non-cash expenses in order to reduce taxes and boost cash flow? Depreciation of plant and equipment Amortization of research and development expenses Accounting for inventory costs Have you asked your accountant for advice on how to use accounting decisions to boost cash flow? Purchasing Typically, how much cash do you disburse monthly to suppliers? $ Do you have a list of your suppliers and the key terms of the purchasing arrangements you have with each? (You should, and your list should have an indication of how important your relationship is to each, thus giving you an idea of how much negotiating leverage you have with them.) Have you met with each of your suppliers to discuss possibilities for arrangements that will help you increase your cash power? Volume discounts Large purchases Smaller repeat purchases that accumulate to large purchases Just-in-time purchasing (smaller purchase amounts, precisely timed to be received when you need them) Commitment for long-term relationships in exchange for price and payment term concessions Adding upstream value (can your suppliers take on some of the work and add value that you currently do in-house?) Adding downstream value Page 5

6 Page 6 People Do your employees have a sense of urgency about cash? Do they pay attention to anything that will speed money into the business and retard its flow (ethically and honestly) out of the business? Is your employee turnover minimal (thus minimizing employee acquisition and training costs)? When you decide to hire a new employee, do you first consider how to do the work not by hiring, but by improving a system? Do you have a systematic way of insuring that the nonhire alternative is seriously considered? Do you understand, and have you quantified, the seasonality of your business, its peaks and valleys, and the variability of workload in terms of staffing? Do you staff with permanent employees for your ongoing base level of work, and only use expensive overtime and temporary employees for short-term increases of work? Does your management system include the ongoing measurement of employee productivity and a systematic way to determine when productivity is substandard, when the employee needs to be retrained or let go, and when the system needs to be improved? Business Systems When designing and/or evaluating your business systems, do you explicitly consider ways to maximize the cash impact of the system? Summing it Up The amount of cash generated and consumed by the system The speed with which cash, or the cash value of material, flows through the system Looking at all the possible changes you might make, what would be the cash impact if you were to implement them all successfully? Some would be one-time releases of cash (e.g., selling idle equipment, reducing your days receivables by 5 days) and some would have an ongoing cash-flow effect (e.g., improving a production system, getting payment checks deposited to your bank accounts one day quicker, upstreaming costs to suppliers). If you weren t able to estimate a dollar impact for some items, take your best guess and include those figures. What is the total one-time release of cash into your business if all the items you checked on this checklist turn out to be feasible? $ What is the ongoing, monthly increase in cash flow generated if all the items you checked on this checklist turn out to be feasible? $ per month

7 Page 7 Next Steps Many business leaders find this checklist challenging to complete. It might alert you to holes in your current practices or challenge some of your preconceived notions about how you approach money. Don t be discouraged! Discovering these obstacles is the first step in overcoming them. And you re not alone. These are precisely the types of challenges an E-Myth Business Coach can guide and mentor you through. When you work one-on-one with an E-Myth Business Coach, it s like having a personal trainer for your business; they ll help you focus on overcoming your challenges and support you as you build best practices to lead you to sustainable business success. Already participating in an E-Myth Mastery Program? Be sure to discuss this checklist with your coach during your next call! Not in one of our business coaching programs? Opportunity is knocking. Contact one of our Program Advisors today to talk about how working one-on-one with an E-Myth Business Coach can change your life. Call us today (US & Canada) (International). We are available online at