Big Picture - May 2015 - (Page 18)

business + management Dollars and Sense How analyzing financial statements - and watching daily cash flow - can prevent financial fixes. | by Marty McGhie BIG PICTURE May 2015 C ompanies that go out of business today rarely do so for a lack of sales. More often, they don't survive because they don't manage their cash. With so many different methods to examine a business, we spend too little time on the most obvious information at our disposal - our financial statements. So, how can you use information from your balance sheet to help identify strengths and weaknesses of your business? Let's start with cash. If you remember one thing about it, remember this oft-repeated slogan - "Cash is king." Don't spend so much time focusing on sales that you forget it. One suggestion to help manage your cash is to use a daily reporting mechanism to provide you with information about your cash balance. For example, in our company we send a daily email to our management team that includes our current cash balance, the day's deposits, aged accounts receivable and accounts payable balances, and upcoming cash expenditures, such as payroll, tax obligations, etc. Consistent, accurate information about your cash balances - not guesswork - should guide your decisions in managing your finances. Your ability to manage cash is dependent on managing accounts receivables and accounts payables skillfully. Like cash, the best way to manage your receivables is to make sure you have timely information. Reviewing your receivables balance regularly is critical, and your accounting department is on the front lines of managing these collections. When it comes to collections, the squeaky wheel gets the grease. If you want to get paid, you must foster open communication with your customers regarding balances owed. Establish firm credit application policies and follow them. If you're uncomfortable extending the credit necessary for a given job, don't be afraid to request a deposit. Good customers will work with you in these situations. The next necessity of a healthy balance sheet is inventory. Carrying excessive inventory, whether due to improper management of quantities or allowing for obsolescence, consumes unnecessary cash from your business. Instead, instruct your purchasing team to define proper minimum and maximum order quantities for your key inventory items and you can avoid this trap. In addition, ask your accounting team for a monthly spreadsheet detailing your inventory balances, and study it for anomalies. As business managers, when we review financials, we tend to focus more on our assets than on our liabilities - perhaps it's simply more pleasant to do so. However, getting a handle on liabilities is every bit as important. Your trade accounts payable picture will dictate the health of your business. If you're constantly extending your vendors to beyond 30 to 45 days on their accounts, do you think you're in their good graces? And this situation can bleed into your relationships with other vendors. For example, if you need a top vendor to jump through some serious hoops to expedite a shipment and you are over 60 days out with some big balances, how willing are they going to MARTY MCGHIE is VP finance/operations of Ferrari Color, a digitalimaging center in Salt Lake City, San Francisco, and Sacramento. He is a partner and director of 18

Table of Contents for the Digital Edition of Big Picture - May 2015

Big Picture - May 2015
Wide Angle
Graphics on the Go
Business + Management
It's Alive
Expert's Guide to FESPA 2015
R + D

Big Picture - May 2015