1. Welcome to Financial Series #3 The Cash Flow Forecast

2. Your Hosts for Today’s Conference are: Gary Elekes in Nashville, Tennessee Gary Oetker in Plano, Texas

3. Conference Objectives:  Review Cash Flow Forecast fundamentals.  Review the key components of the Cash Flow Forecast and learn how to generate one.  Review the importance of the Cash Flow Forecast in the financial management of a business.

4.  Review the difference between profit and cash flow.  Review how profitable companies can become insolvent.  Review the Cash Flow Forecast equation.  Review Cash Inflow and the impact of Accounts Receivable.  Review Cash Outflow as it occurs in cost of sales, operating costs and balance sheet implications.  Review things that negatively affect cash flow. Agenda for Conference

5.  More businesses fail for lack of cash than for want of profit  Cash is the life-blood of a business. Without it the business dies.  The key challenge of any business is keeping more cash coming in than is going out  A Cash Flow Forecast is an important tool to control the financial aspects of a business Cash Is King!

6.  Many contractors do not think about cash needs until after they are overextended  May become past due with suppliers  May have problems making payroll  To try to borrow money in a frantic need is usually always a bad idea  Banks are less likely to loan money when a business is overextended Getting Into Trouble

7.  Most businesses equate success with sales volume and profit  A business can become insolvent in the middle of its best year in terms of sales and profits!  Be very careful of cash flow where the business is growing rapidly. Working Capital is needed to fund growth. Getting Into Trouble (cont)

8. Profit  Looks at revenue and expenses over a certain period of time Cash Flow  Looks at movement of money in and out of business Cash Flow Versus Profit

9. Cash Inflow Often Lags the Sale

10.  It’s the owner’s/general managers responsibility to monitor, measure, invest, borrow and collect enough money to operate the business  Management should predict future income and expenditures through budgeting and forecasting  Management should anticipate the cash needed to sustain the operation.  Management must arrange financing for cash flow short falls  Management should arrange short term investments for temporary cash flow surpluses Management & Cash Flow

11.  Starting Cash Balance  Plus Projected Cash Inflows  Minus Projected Cash Outlays  Equals Ending Cash Balance  A negative cash position is a shortfall or gap  A positive cash position is called free cash or cash surplus Cash Flow Forecast Equation

12. Cash Inflow  Cash Sale  Collection on Receivables  Borrowed Funds  Sale of Assets  Investment Income  Additional Input of Owner Equity Cash Inflow & Outflow Cash Outflow Paying Employee Wages Purchasing Materials for Jobs or inventory Operating Costs (Overhead Expenses) Paying Back Loans Cash Spent on Capital Expenditures Paying Taxes Owner Equity Withdrawn Examples

13.  A Cash Flow Forecast can be budgeted on a weekly, monthly, quarterly or yearly basis  It should be performed more frequently for businesses with peaks and valleys in revenue  It’s also critical for businesses were customer payments may be delayed  For new companies or ones with cash flow problems, the forecast should be done monthly How Often Should It Be Done?

14.  Cash Sales  Service Agreement Receipts (paid)  Cash Receipts from Financing Vendors  Current Receivables Collected – Cash Receipts  Receivable Collected 31-60 Days  Receivable Collected 61-90 Days  Receivable Collected 91-120 Days  Receivable Collected Over 121 Days  Retainage Collected  Loan Payments Received  Interest Income  Warranty Return Credits from Vendors Cash Inflow - Detail Account for A/R aging. in your planning. Use history as a guide to collections

15. Accounts Receivable Aging

16.  Vendor Payment Equipment (payables)  Vendor Payment Parts & Material (payables)  Payroll and all Wages/Commissions  Sub-Contractor Costs  3 rd Party Extended Warranty Costs  Buydown/Financing Costs  Permits  Other Direct Cost Cash Outflow – Detail Cost of Sales

17.  All Other Payroll and Wages  Payroll Taxes  Worker’s Compensation Insurance  Group Medical Insurance  401K Employer Contribution  Self Funded Workers Comp  Cash Outflow – Detail Operating Costs - All Other Overhead Line Item Accounts on Income Statement - Less Depreciation

18.  Payment for Accrued Liabilities (reserves)  Payments for Capital Expenditures  Loan Principle Payment  Owner’s Withdrawal  Other Cash Outlays Cash Outflow – Detail Balance Sheet Implications

19.  Excess Inventory  Credit Policy  Require Down Payment on Jobs, Balance Due Upon Completion  COD on Residential Service Calls  Accounts Receivable  Poor Collection Processes  Credit Terms Things That Negatively Affect Cash Flow

20.  External Financing Sources  Revolving Lines of Credit  Bank Loans  Trade Credit  Bring Additional Equity Into Business Be Very Careful When Taking Profits Out of the Business. Profits Provide the Working Capital for Growth. Filling Cash Flow Gaps

21. Cash Flow Forecast Tool – Inflow

22. Cash Flow Forecast Tool – Outflow Positive Net Cash Indicates a Surplus Negative Net Cash Indicates a Shortage

23.  Make sure you are realistic about cash inflow (money not promises)  Be realistic in terms of sales and cost of sales projections (avoid being too optimistic in terms of generating sales or keeping direct costs low)  It’s useful to prepare “best case” and “worst case plans  Involve your people in this planning process Words of Advice

24.  Summarizes the Impact of all Activities on the Business  Shows How Much Money is Required at Any Given Time to Finance all Activities  Gives an Early Warning of Cash Flow Gaps so Management Can Readily Adapt  Gives Confidence to Outsiders Who Might Be Called Upon To Assist In Financing Cash Flow Forecast

25. Do not expect to be perfect when you start. Here are some things to help you get better:  If you do not have the information in the beginning, make your best assumptions  Review the actual results for the month against the forecast  Review any significant variance  Update the forecast to reflect new activities that will affect cash flow Keep at it! You’ll Get Better At It

26. That’s A Subject for Another Coaching Conference Cash Management

27. Q uestions & A nswers