1. Welcome to MT209 Seminar 6

2. Unit 5 Review Any questions regarding Unit 5 assignments or material?

3. Course Project First portion of business plan (cash flow) due! Analysis of info and write-up are real “meat” of the business plan Prepare both a three year (annual summary) and one year monthly cash flow analysis – include in your cash flow write-up Keep a copy to include in your final business plan for Unit 9

4. Unit 6 Assignments Read Chapter 12 – Managing Cash Flows Review – Quiz found in Review tab of Unit 6 Discussion Questions – Answer and post response to at least 2 classmates’ answers for each question – Use articles from the Internet to support your answers

5. The basics of Cash Flow Management As business owners, we all know it’s true: cash is king! Without it, your business couldn’t survive. That’s because you need cash to operate and grow your business. How else will you ensure you’re able to purchase supplies, pay your rent, advertise, hire employees or take care of the myriad other business activities that require money?

6. Cash flow is the lifeblood of any business, and it’s imperative that you understand the inflows and outflows accordingly. So let’s take a closer look at just how cash flow works:

7. Cash is generated into a business through:???

8. Sales of your product or service Loan or credit card proceeds Asset sales Owner investments

9. Cash flows out of a business through:???

10. Business expenditures Loan or credit card principal payments Asset purchases Owner withdrawals

11. These cash inflows and outflows can be categorized into three main business parts: Operating, which covers sales and business expendituressales Investing, which covers asset sales and purchases Financing, which covers loan payments and proceeds, and owner investments and withdrawals Financing

12. Ideally, you should be generating the majority of your cash flow from operating activities – that is, the sale of your products or services. This is critical for the long-term success of your business as the other two aspects – investing and financing – aren’t viable ways to manage and grow your business.cash flow

13. Operating activities generate cash inflows and outflows through the sale of your products and services and the purchase of supplies and other general business expenditures. Operating cash flow reflects the daily activities of your business. There will be times when cash inflows and outflows are generated by investing or financing activities, but these are supplemental aspects.

14. The generation of cash flow from investing activities relates to the purchase and sales of your fixed assets (for instance, your property, plant or equipment). Financing activities generate cash inflows through the investment of money into the business by owners or lenders, such as loans and credit cards.

15. When you pay off the principal of your loans and credit cards, you’re then causing a cash outflow related to financing activities. (The payment of the interest on the loans and credit cards is classified as an operating activity.)

16. When the owner invests or withdraws money from the business, it creates a change in their equity and is associated with financing activities.

17. It’s important to understand how the inflows and outflows of your business reflect the health of your company. There are times when you may want to generate cash flow from investing and financing activities. But for the long-term success of your business, you must be generating sales and therefore creating cash flow from your operating activities.

18. You can easily create a cash flow statement by simply taking into account all your business inflows and subtracting your cash outflows to equal the net change in your cash for any given time period, usually a monthly basis. If you don’t want to do it manually, one of the simplest ways to generate financial statements is to use an accounting software package.

19. Cash flow projections should be a part of your budgeting process to ensure that you’re being proactive in managing your business. If you don’t understand the basics of cash flow for your business, you may find yourself in a cash flow crunch where you’re waiting for payments from clients but are still expected to pay your operating bills.

20. That’s especially important if you have a lot of sales on account: then you have to have enough cash on hand to cover the daily bills until your clients pay you. This isn’t an easy situation for a business to be in, which is why it’s vital that you understand when you have cash flowing both out of and into your business.

21. It’s really very simple: understanding where your cash is coming from and going to is a critical part of smart business management.

22. Cash Flow Analysis Avoid unpleasant financial surprises by using a cash flow analysis.

23. The cash flow statement enables you to track cash as it flows in and out of your business and reveals to you the causes of cash flow shortfalls and surpluses. The operating activities are the daily occurrences that are essential to any business operation. If these are positive, then it indicates to the owner that the business is self-sufficient in funding its daily operational cash flows internally. If the number is negative, then it indicates that outside funds were needed to sustain the operation of the business.

24. Investing activities generally use cash because most businesses are more likely to acquire new equipment and machinery than to sell old fixed assets. When a company does need cash to fund investing activities in a given year, it must come either from an internal operating cash flow surplus, from financing activity increases, or from cash reserves built up in prior years.

25. Financing activities represent the external sources of funds available to the business. Financing activities typically will be a provider of funds when a company has shortfalls in operating or investing activities. The reverse is often true when operating activities are a source of excess cash flow, as the overflow often is used to reduce debt. Financing

26. The increase/decrease in the cash figure at the bottom of the cash flow statement represents the net result of operating, investing and financing activities. If a business ever runs out of cash, it can't survive, so this is a key number.

27. You will be able to use the cash flow statement not only to analyze your sources and uses of cash from year to year but also from month to month if you set up your accounting system to produce monthly statements. You will find the cash flow statement to be an invaluable tool in understanding the how's and whys of cash flowing into and out of your business.cash flow

28. You will need accurate and timely financial information to help you manage your business effectively. Your financial statements will also be critical budgeting tools as you seek to achieve financial milestones in your business.

29. Protecting Your Cash Flow There's a golden rule in business you'd be smart to learn now: No matter how much you sell, if you don't collect the money, you're going to go out of business. As business owners, we often get so wrapped up in selling our products and services that we forget to take the time to ensure we're managing our cash flow and receiving the money for those sales. But when it comes to your bottom line, you'd be wrong to simply focus on total sales sales: You also need to focus on the cash collection of those sales.cash flow

30. To help get that money in the door, here are seven tips for improving your cash flow:

31. Require a down payment on projects so that your customers fund the project, not you. customers Set your terms as payment in full upon completion. Don't extend out 30 or 60 days after you've completed your work. You don't get to use your hard- earned cash until payment is received from your clients, so get it as soon as you can. Negotiate terms with your vendors for 30 days or more so you have an opportunity to complete the work, bill your customers and receive payments prior to paying your vendor.

32. Have a collection process in place, and follow through. When your customers delay payments, they're using your cash. You need to ensure that you're being diligent in collecting from your customers. Set up a line of credit at your bank that you can use in case of emergency. Often, lenders’ rates will be less than the late fees your vendors will charge. This line of credit will help you cover a lapse in cash flow for short periods of time.

33. Factoring of your receivables allows you to sell your receivables and get cash now instead of waiting 30 or 60 days. There's a fee for using a factoring service, so you need to ensure that the benefit of getting cash today exceeds the cost you'll pay for that expedience. Minimize the amount of draws you take personally from your business. Each rand you take from your company reduces the amount of cash flow you'll have available for the business to grow.

34. Not all these options will work for every business – you have to consider which of these will work for your specific needs. Remember, your cash flow is not the same as your profits. You can have a profitable business, but a negative cash flow. Prepare a monthly cash flow statement to ensure that you don't get caught unexpectedly without enough cash to handle your day-to-day operations.

35. Don't ever think you're too busy making sales and working in your business to worry about your cash flow. This mindset is the very thing that can put a business out of business when there's no cash to pay the bills. So take the time to analyse your business's cash flow to locate – and make – some small changes that will have a big impact on your cash flow.analyse

36. Questions?? Wrap-up