Mirus Capital AdvisorsMirus Capital Advisors

Friday, May 15, 2015

My Company is Growing – Why Am I Running Out of Cash?


I recently attended a breakfast seminar at XPX Boston where four members of B2B CFO, Frank Armenio, Ken Sommer, Leo Casey, and Randy Walther shared their perspectives and war stories about how fast growing companies find themselves running out of cash.

So how do companies get in this position?

  • They spend money without a plan (projected Income Statement, Balance Sheet and Cash Flow statements).
  • Owners get pulled into the weeds – putting out fires on a daily basis so that they can’t focus on the big picture.
  • Owners don’t have the information (as opposed to data) that they need to make decisions.
  • There is no accountability across the organization (i.e. metrics and measurements).

Many companies, if they prepare projections at all, only look at the income statement.  But the income statement doesn’t tell you what your cash flows look like.  How long does it take to collect your Accounts Receivable – 30 days, 60 days, 90 days?  What level of inventory is required to support the projected revenue growth? Do you need to invest ahead in sales and marketing to drive the revenue growth you’re projecting? What investments are required in capital equipment? What principal repayments are required on your debt?  It’s critical to project your balance sheets and cash flow statements along with the income statement to see how trends and requirements in those areas impact your available cash.

Then put processes in place to ensure that you get timely, accurate information so that you can spot issues before they become critical.  Make sure you understand balance sheet metrics such as Days Sales in Receivables, Accounts Receivable Aging, Inventory Turnover, Current Ratio, and Sales to Working Capital, and what changes in these metrics mean for your business and cash flow.

If you’re not sure how to create the plan and the metrics to manage to the plan, give me a call and I’ll give you an introduction to some great outside CFOs who can help you avoid a cash crunch.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

 

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