12 High Crimes against Cash Flow

There are 12 Crimes committed against many, if not most, small business every day across the US. These crimes cause tremendous financial stress, loss, and trauma to the victims (owners and team members), yet only a few can effectively defend themselves against these scoundrels. The crimes are:

  1. Failing to Measure and Forecast your Company’s 12-week Cash Flow
  2. Failing to Measure, Analyze and Mitigate Waste (Including Inventory)
  3. Failing to Measure, Analyze and Mitigate Overtime Paid each Period
  4. Failing to Measure, Analyze and Mitigate Non-Billed Work-hours Paid
  5. Failing to Measure, Analyze and Improve Productivity
  6. Failing to Measure, Analyze and Improve your 30-60-90-Day Accounts Receivable (AR) Accounts
  7. Failing to Develop a Purchasing Strategy, as well as a Well-defined Purchasing Process
  8. Failing to Measure, Analyze and Mitigate your Accounts Payable Accounts
  9. Failing to Review and Understand Your Financial Statements & how your Financial Ratios affect your business in Profound Ways
  10. Failing to Set Strategic and Tactical Plans that include S.M.A.R.T. Goals
  11. Failing to Measure Operations and/or Project Performance in Real-Time
  12. Failing to Validate Your Pricing Strategy & Methodology

1. Understanding the Crime: Fail to Measure and Forecast your company’s 12-week Cash Flow

  1. Struggle to Pay Bills on time
  2. Suffering from “Accrual” vs. “Cash” Confusion when planning to pay bills
  3. Lack of Knowledge on how the Income Statement & Balance Sheet affect cash
  4. No Measurement Method or Heuristics
  5. No Trend Record or Analysis is easily accessible
  6. Difficult to track in the Heat of Battle
  7. Lack of Capital Considerations
  8. Possible vs. Probable – Erroneous Assumptions
  9. “I’m making a profit, where is my Cash?”
  10. “Oops, how do I pay my Taxes?”

Mitigate the Crime: Measure and Forecast your company’s 12-week Cash Flow

  1. Establish Cash Accounts Beginning Balance for a given Week
  2. Determine Cash Inflows (Cash Received that week)
    1. Record incoming cash from Accounts Receivable in the current week, and forecast next 11-weeks
    2. Record Cash Sales Completed in the current week, and forecast next 11-weeks
    3. Record incoming cash from loans, sales of assets, added Capital, etc. for each of the 12-weeks
  3. Determine Cash Outflows (Cash paid out that week)
    1. Payroll to be paid the current week, and forecast next 11-weeks
    2. Payroll Taxes
    3. Accounts Payable actually paid that week and forecast what will be paid the next 11-weeks
    4. Loan payments to be paid the current week, and forecast next 11-weeks
    5. Recurring Overhead Bills paid current & other 11-weeks (insurance, utilities, office supplies, etc.)
    6. Calculate Sales Tax to be paid in the 12-week period
  4. Cash Reserve Considerations
    1. Capital Budget – for Equipment Purchases, Facilities Improvement, etc.
    2. Large Bills Pending & Purchase Opportunities to save you money (long-term)
    3. Human Capital – New Hires, Increasing Staffing Levels & Training Costs
    4. Scheduling shortfalls & Seasonality
    5. Stock Buy Back
    6. Taxes
  5. Create & Utilize a Cash Flow Management Calculator (Spreadsheet, Database, App., etc.) or learn to use existing tools embedded in your accounting or Enterprise software.
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2. Understand the Crime: Fail to Measure, Analyze and Mitigate Waste

  1. Business Owners believe that waste in their company is minimal.
  2. The business owner may realize there was an event that caused a loss, but they rarely measure the exact cost and don’t keep any distinct record of it – soon it is forgotten in the ongoing heat of the competition battle.
  3. They don’t measure waste trends or actual (detailed/comprehensive) costs.
  4. They don’t have a systematic analysis method or historical record, therefore there are no “lessons Learned” opportunities.
  5. Labor Waste, Material Waste and Other common Waste are not separated in their accounting system, and therefore are difficult to identify or analyze.
  6. Thousands, Tens-of-thousands, Hundreds-of-thousands, even Millions of Dollars loss, caused by waste, often go un-noticed until it’s too late to effectively mitigate those losses.
  7. $1,000.00 waste a week results in $52,000.00 annual loss! $12,000.00 waste a week results in $624,000.00 annual loss! Need I go on? Do You Know what your Waste Costs You?

Mitigate Against the Crime: Fail to Measure, Analyze and Mitigate Waste

  1. Identify Sources of Waste
    1. Human Potential and/or Creativity
    2. Overproduction
    3. Waiting, Delays and/or Bottlenecks
    4. Transportation and Materials Handling
    5. Process and Methods
    6. Motion

Why is this Presentation Important?

The “12 Crimes against Cash Flow” presentation addresses essential principles that all small business must understand and eventually master if they are going grow prosperously and compete effectively.

The audience will gain insights into proven strategies that many professionals never achieve. Through their new knowledge, audience members may acquire a distinct advantage in their ability to help their businesses improve.

To be continued…

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