1. Manage Your Cash Flow

2. Objectives Create a cash budget. Examine the role of credit.
Improve your business’s cash flow.

3. Create a Cash Budget Construct a Cash Budget
Should show a projection of your cash coming in and going out.
Based on actual past revenue and operating expenses to ensure accuracy (if available)

4. Sample Cash Budget

5. Checkpoint>>
Why is a cash budget important?

6. Examine the Role of Credit
Types of Credit
Trade credit- offered by one business to another (buy now – pay later)
The negotiated price of products purchased on trade credit will be higher than the cash price (sometimes takes the place of interest)

7. Consumer credit- allows customers to take merchandise now and pay later
Takes two major forms:
loans
credit cards

8. loan- gives a lump sum of money to spend and pay back over time with interest
secured loan- backed by something of value that can be taken and sold if the loan is not repaid (collateral)
installment loan- paid back in a certain number of payments (monthly increments)

9. Most credit cards fall into this category.
unsecured loan- granted based on the credit history of the individual (excellent credit history)
Most credit cards fall into this category.
The credit card company reimburses the company for customer purchases
The credit card company then charges the business a fee (1-3% of the amount charged)

10. Credit Procedures
Terms- amount of credit, interest rate, length of time before payment is required
Some items to consider when determining who is creditworthy:
Previous credit history
Employment record – consistent income
Assets owned – along with money owed for assets
Money available for making payments
Financial references

11. Uncollectible Accounts
Businesses and credit card companies usually charge the customer interest on the balance due to cover the cost of credit service.
When customers are unable or unwilling to pay, this becomes a decrease in income for the business.

12. Checkpoint>>
Why is credit offered?

13. Improve Your Cash Flow
If cash receipts are not enough to cover expenses, you will have to improve your cash flow by:
Offering discounts on bills paid right away (2/10 net 30)
Establishing tighter credit policies- decrease the amount of time your customers can pay from 60 to 30 days (charging late fees)

14. Establishing a follow-up system for collecting unpaid accounts receivable- collection agency
Holding shipments to customers with large unpaid bills
Two businesses with the same level of sales and expenses could have very different cash flows.

15. Increase Your Capital
Businesses can have cash flow problems if they start with too little capital.
Obtain more capital by:
Securing a loan
Financing with personal funds
Finding investors

16. Reduce Your Disbursements
This can be done by:
Gaining better control of inventory and payroll
Slowing the rate at which bills are paid
Reducing expenses

17. Control Inventory and Payroll
Check to make sure the business is not holding too much inventory
This reduces accounts payable
Reduce the size of the workforce
Layoffs or reduction in hours worked

18. Slow Bill Payment
Some suppliers may agree to accept payment at a later date if interest charges are paid.

19. Cut Other Expenses
Reduce variable expenses such as advertising to improve cash flow.

20. Checkpoint>>
Why is it important to have adequate cash flow?

21. Assignment
Thinking Critically
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