3 tier strategy to manage cashflow

In Today’s Newsletter:

You have heard this 120th time "Cashflow Management" right ??

Today we are going to discuss 121st time, Cashflow but on How to optimize cashflow ??

Cash is essential.

Without optimization, businesses can be profitable on paper and yet still be at risk of bankruptcy.

First step is to create a structured approach to cash flow management and make sure it’s fully optimized.

A structured approach rests on three key pillars:

• Working capital management.
• Create a cash flow forecast.
• Scenario planning.

How to Implement Working Capital Management ?

Working capital is the difference between current assets and current liabilities, and it represents the liquidity available for a business to meet its short-term financial obligations.

Working capital comprises of 3 main sections:

• Receivables
• Payables
• Inventory

Here’s table to improvise the working capital.

How to Create Cashflow Forecast?

Create 12-month plan in terms of inflow and outflow (Divide outflows into operating and non operating outflows.) Your operating inflow should be sufficient to support to your operating outflow, if that is not the case, external funding is required.

Keep you model as simple as possible, many assumptions and complexity will lead to lot of errors.

Review your cashflows on monthly basis and in case of tougher situation you need to review on weekly basis.

Scenario Planning

There can be two scenarios:

• Cash Shortages
• Excess Cashflow.

Here’s how to manage the same.

Takeaways

Disciple is moat in any organization. Create a plan and review mechanism.

• Set the foundations for cash flow management and
• Create a structured approach to planning and review.

Stay financially savvy!

Akash from Jordensky

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