Cash Flow Finance

Understanding the importance of cash flow finance can mean the difference between business success and business failure for many organizations. Without sufficient money on hand, many companies will struggle to meet expenses such as payroll, or monthly bills. When this resource is at high levels, it can be a marker of a company's financial well being. Investments operate on a cash flow finance basis as well. However, there are liabilities attached to the availability of ready money. Anytime that a company has a good deal of money on hand, they might discover that a takeover is a real possibility. Measuring the amount of money that an organization has on hand can be done by looking at earnings before certain items have been subtracted such as taxes, interest, amortization, and depreciation. Extra money on hand can mean that a company is able to pay down debt or make certain investments that will benefit the organization. On the other hand, a high level of cash flow can mean that a company will end up paying more in taxes. But when it is all said and done, having a realistic picture of available funds is a good idea for any company. The ability to track this information can be important for business success.

Dealing with cash flow finance involves more than just an understanding of an organization's earnings. There are many non cash items that are calculated into any organization's financial statement. Understanding how cash flow works does not necessarily need to be complicated and difficult. In its most basic terms, cash flow finance means the difference between the inflow and the outflow of an organization's money. Obviously, if the money that is flowing out exceeds the money that is flowing in, this area of financial evaluation will suffer. Examples of out flowing money could include funds that are owed to creditors, payments for needed supplies, payroll expenses, or the purchase of various assets. Any purchase that is made on credit is not counted as an outgoing expense. This is because no actual money was withdrawn form company accounts for the credit purchase. Any time that funds are transferred into a company's account; this is a positive inflow of money. These inflows will generally come from customers who purchase goods or services, money from investors, or sales of assets such as company owned real estate or equipment. However, a basic fact to remember is that simply because there are funds that are coming into an organization, it does not necessarily follow that the organization is operating on a profit. Other factors must be considered in determining a company's level of profit.

Statements are a crucial part of an organization's understanding of cash flow finance. These statements will generally include information on income, and balance sheets, and are used to prepare annual reports that will be given to shareholders. In fact, this statement is generally one of three documents that are required in any organization's annual report. A company's shareholders will usually insist on receiving information on cash flow finance. Investors and creditors wish to know about a company's financial activities and have a vested interest in predicting the amount of cash flow that the company will attain in the future. In addition to cash flow statements, financial statements will usually also include balance sheets and income statements. Balance sheets detail the organizations various assets as well as liabilities. Income statements reflect the company's profitability during a specified span of time. Statements that record how money flows into and out of the organization are meant to reconcile the balance sheet and the income statement. Other things that are featured on this statement may include information about operating activities, investing activities, and financing activities. Generally, the one item on this report that will generate the most interest is, quite naturally, found on the bottom line. The net increase or decrease of money on hand is reflected in this important report.

Another important aspect of cash flow finance is the management of these funds. Money in this category will generally include any currency or checks that are on hand as well as funds that are deposited into an organization's bank account. Other funds can be found in certificates of deposit or treasury bills. These funds are counted because they can quickly and easily be turned into needed financing. The sum total of all of this cash and its equivalents constitutes an organization's cash flow. Problems in this area can stifle an organization, particularly a rapidly growing one. The need to add items of inventory or to hire new employees can be a difficult need to meet when there is not enough available money on hand. Handling information on an organization's available funds in a way that is both accurate and honest can be key to that organization's success. The Bible talks about the importance of keeping God's word. "But whoso keepeth his word, in him verily is the love of God perfected: hereby know we that we are in him." (1 John 2:5)

If cash flow finance is a problem for an organization, there are a few things that can be done. If it is possible, keeping funds on reserve in the event of a lack of ready money is a good safeguard. Of course, limiting spending whenever possible can help keep funds flowing as well. Projecting budget needs and expected income can help keep surprises to a minimum. Lower inventories and leased equipment can also help keep money flowing. Another suggestion might be to offer incentives to customers that encourage early payments as well as handling collections problems in a timely manner.

Cash Flow Generator

A cash flow generator is basically any strategy employed to improve the monthly income stream of a business. The business may have large spans of time each month where liquid money to pay expenses and wages and supplies are not present. These spans of time can be the result of many things. For example, the Sunshine Umbrella Company has some pretty dry income months from November to April. The One and a Half Foot Hot Dog Company is a new start up and needs income stream help until a bun manufacturer is found. And the podiatrist down the street is having difficulty making ends meet because many of his patients take sixty to ninety days to pay. Money that is supposed to come in for medicine and utilities but hasn't yet, can't help when bills are due, thus the income stream problem.

A cash flow generator can be the redesigned advertising strategy that a business might incorporate. It might be something as simple as the use of a website or a commitment to a direct mailing campaign. The advertising strategy could be an elaborate viral campaign with the intention of gathering national attention with an Internet spoof on a competitor. A cash flow generator can be the changing of billing procedures to spread out invoicing throughout the month so there are no dry times without ready money. It can be a readjustment of inventory procedures so that product is only sitting on the shelves for no more than two weeks, or the supplies and materials are only bought when purchase orders come in. Sometimes the impossible has to be made possible in order that so much money in not tied up in transition periods. But reality would say that the very term cash flow generator and the hunt for one probably suggests that a business has some serious issues that are hindering it from being fully functional.

For the Sunshine Umbrella Company the problem was the less than rainy season of November to April. In most of the United States the problem is snow and ice during that season and while umbrellas are still sometimes used, it's more about shovels and snow blowers. If, for example, Sunshine decided to manufacture shovels for half of the year, that decision might very well be a cash flow generator. But that was not the case, and an income stream consultant suggested that the company initiate a ten year agreement with a factor to produce a purchase order finance agreement income stream program. The factor, or investment lender, agreed that for ten years between November and March, he would pay the company an advance on all billable orders that came in, long before the actual invoices went out. Within two business days, Sunshine could have upfront money to order supplies and make the product. In exchange for such an agreement, the investor would be repaid for the advance plus a commission on the money loaned whenever the invoice was finally paid.

The Sunshine Umbrella Company was brought into year round solvency. But the Foot and a Half Long Hot Dog Company had other problems. Their customers were having trouble finding buns to fit the product, meaning that they were slow on paying invoices. So day by day product was leaving the factory but customers weren't paying on time and cash flow became more like cash woe and the new start up started talking about taking a dive. An income stream consultant working with the company suggested that a factor strike an agreement to pay eighty percent of all billable invoices when they were first generated in return for repayment and a commission. This immediately freed up sorely needed cash and the company began looking at the possibility of building a bakery alongside the factory and thus another cash flow generator success story was born. Christian business people know that God is not a vending machine that will dispense every whim and desire, but they do know He will work for their best when called upon for help. "I love the Lord because he hath heard my voice and my supplications." (Psalm 116:1)

The foot doctor was facing real cash flow issues. It is not unheard of to have medical invoices go unpaid for up to ninety days. Yet the need for cash liquidity was very real, especially for fresh medicine and staff wages. Again, a cash flow consultant suggested that a factor could make a real difference in the medical practice's bottom line. The agent chosen agreed to pay eighty percent of all invoices generated during the month. This three year agreement allowed the doctor to have the needed money to get early payment discounts on medicine and equipment sometimes amounting to twenty five percent. In exchange, the factor would receive a commission on the loaned money and be repaid back in full as the paid invoices arrived at the office. Being paid immediately for billed invoices became a huge cash flow generator for the medical center.

Today's business world is brutal and the cash flow generator solutions aren't always as simple as the ones portrayed here. However, they do require common sense as well as innovative thinking. Before choosing a factor for a cash woe problem, check his pedigree out thoroughly. Be sure that all of the "typical" solutions have been implemented first, including raising prices! That's a great way to produce more liquidity. But the bottom line is having the courage to admit things aren't right and are possibly due to the way they were handled in the past.





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