How to manage cash flow in a large organization?

Intiative of the topic

As the Schofields have learned, seasonal businesses are far
more difficult to manage than those that generate sales and cash
year-round. How can business owners whose companies face
highly seasonal sales patterns manage the uneven cash flow?

cash flow in a large organization

• Be financially disciplined

 Seasonal business owners must
establish a realistic budget, stick to it, and avoid the temptation
to spend lavishly when cash flow is plentiful. Teevan
McManus, owner of the Coronado Surfing Academy in San
Diego, failed to heed this advice in his first year of business.
“I burned through everything I made in the summer and
was living off of my business line of credit before the next
season came around,” he recalls. “I barely made it to the
next June.”

• Manage your time and your employees’ time carefully

During the busy season, employees may be working overtime
to serve the rush of customers; during the off-season,
a business owner may cut back to 20-hour workweeks or
operate with a skeleton crew.

• Use permanent employees sparingly

 Many owners
of seasonal businesses use a small core of permanent employees
and then hire part-time workers or student interns
during their busy season. Planning for the right number of
seasonal employees and recruiting them early ensures that a
business will be able to serve its customers properly.

• Put aside cash in a separate account that you use only
for the lean months of your seasonal business.

• Maximize your productivity in the off-season

 Use the
slow season to conduct market research, perform routine
maintenance and repairs, revise your Web site, and stay in
touch with customers. Steve Kopelman’s company, Haunted
House.com, earns all of its $2.6 million in annual revenue
in a six-week period leading up to Halloween. Starting in
November, Kopelman surveys his customers so that he can
refine his marketing efforts for the next season and solicit
suggestions for improvement. He visits trade shows to look
for the latest technology and gadgets to keep his haunted
houses fresh and exciting for his customers. Kopelman also
negotiates leases on properties for the next season and
studies his competition by visiting every haunted house Web
site he can find.

• Keep inventory at minimal levels during the off-season.

As you will learn in this chapter, holding inventory
unnecessarily merely ties up valuable cash uselessly.

• Negotiate payment terms with vendors that are
synchronized with your company’s cash flow.
 Schedule

payments to vendors so that they coincide with your
company’s cash peaks rather than its cash valleys.

• Offer off-peak discounts

 Doing so may generate some
revenue during slow periods.

• Consider starting a complementary seasonal business

The weeks leading up to Halloween are the peak season for
Sam Fard, owner of Los Angeles–based Roma Costume, a
manufacturer of costumes for women. To reduce the highly
seasonal nature of his business, Fard added a line of bikinis
and lingerie to his company’s product mix.

• Create a cash flow forecast

 Perhaps one of the most
important steps that seasonal business owners can take is
to develop a forecast of their companies’ cash flow. Doing
so allows them to spot patterns and trends and to make
plans for covering inevitable cash shortages. Make sure that
you include a pessimistic or worst-case scenario in your cash
forecast.

• Establish a bank line of credit

 The line of credit should
be large enough to cover at least three months’ worth of
expenses. Use your cash flow forecast to show the banker
how and when your company will be able to repay the loan.
A good cash forecast “shows the banker that you know
exactly where the peaks and valleys are and what your cash
needs are,” says one banker.

A cash flow describes a real or virtual movement of money

a cash flow in its narrow sense is a payment (in a currency), especially from one central bank account to another; the term 'cash flow' is mostly used to describe payments that are expected to happen in the future, are thus uncertain and therefore need to be forecasted with cash flows;
a cash flow is determined by its time t, nominal amount N, currency CCY and account A; symbolically CF = CF(t,N,CCY,A).
it is however popular to use cash flow in a less specified sense describing (symbolic) payments into or out of a business, project, or financial product.
Cash flows are narrowly interconnected with the concepts of value, interest rate and liquidity. A cash flow that shall happen on a future day tN can be transformed into a cash flow of the same value in t0.

Cash flow analysis

Cash flows are often transformed into measures that give information e.g. on a company's value and situation:
to determine a project's rate of return or value. The time of cash flows into and out of projects are used as inputs in financial models such as internal rate of return and net present value.
to determine problems with a business's liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash even while profitable.
as an alternative measure of a business's profits when it is believed that accrual accounting concepts do not represent economic realities. For instance, a company may be notionally profitable but generating little operational cash (as may be the case for a company that barters its products rather than selling for cash). In such a case, the company may be deriving additional operating cash by issuing shares or raising additional debt finance.
cash flow can be used to evaluate the 'quality' of income generated by accrual accounting. When net income is composed of large non-cash items it is considered low quality.
to evaluate the risks within a financial product, e.g., matching cash requirements, evaluating default risk, re-investment requirements, etc.
Cash flow notion is based loosely on cash flow statement accounting standards. the term is flexible and can refer to time intervals spanning over past-future. It can refer to the total of all flows involved or a subset of those flows. Subset terms include net cash flow, operating cash flow and free cash flow.

Symptoms of cash flow problems. There are many reasons a business can suffer cash flow problems – some are down to mismanagement and poor decisions, and in some cases factors outside of your control. Any of the following symptoms can indicate that a business is experiencing cash flow problems:

Up to overdraft limit – no headroom / returned payments
Stretch to pay salaries each month
Trade creditor arrears
Taxation arrears
Rent arrears
No working capital ‘buffer’ – surviving day to day
Negative working capital on balance sheet – over geared / losses?
Lack of funds for remedial action (redundancies / premises relocation)
Lack of profitability – insufficient to support owner / manager’s lifestyle
Unable to pay for professional advice
Cash flow problems can be avoided through good credit management; the Chartered Institute of Credit Management has produced a series of Managing Cash flow Guides which are available on its website (see references) which have been dowloaded more than 500,000 times at December2015..Courteasy of wikipedia////