How to Optimize Cash Flow

The client owes you $100K. You owe vendors $50K. Both are due this Friday. Guess what usually happens? The client pays late. The vendors want their money now. This is the AR/AP trap nobody warns you about. The reality for most mid-market companies: → Average AR days: 47 → Average AP days: 30 → Cash flow gap: 17 days of operational funding needed This silent cash flow gap creates a perpetual working capital shortage that worsens as you grow. As a CFO, I see it all the time: Businesses focus on sales and margins, but neglect the timing gap between collections and disbursements. And often, this timing gap is bigger than their profit margin. The quantifiable impact: - Each day of AR improvement = 1% annual cash flow boost - Missing 2% early payment discounts = 24% lost annualized return - Damaged vendor relationships = higher costs and tougher terms The liquidity equation is simple: → Beginning cash + collections - disbursements = ending cash But execution is where businesses fail. Top-performing companies do this differently: - Enforce clear invoice terms - Start systematic collections before the due date.  - Implement strategic vendor payment scheduling - Track cash conversion cycle metrics at the executive level. Cash flow management isn’t bookkeeping. It’s a strategic weapon for building enterprise value. What specific cash flow gap is holding your company back? Follow Amit Kumar for more insights on accounting and finance. #accountspayable  #finance  #accountsreceivable

10 Strategic Cash Flow Mistakes and How to Fix Them. ------- 💎If you liked this post, you’ll love the strategic finance insights I publish weekly in my free newsletter. 💎Sign up here: https://bit.ly/4300Di8 ------- If you're making these, your organization and career might be at risk. 1️⃣ Mismatching Cash Flow Maturities ↳ Utilizing short-term financing for long-term assets will lead to liquidity challenges. ↳ Match up the cash flows on the assets being financed with cash flows on the debt 2️⃣ Ignoring Foreign Exchange Rate Volatility ↳ Trading in multiple foreign currencies can quickly erode profitability, liquidity, and leverage. ↳ Design an active FX management strategy (forwards, options, etc) to safeguard against the adverse effects of currency fluctuations. 3️⃣ Ignoring Interest Rate Volatility ↳ Ignoring interest rate volatility can impact financing costs and cash flow predictability ↳ Develop an appropriate financing strategy to manage exposures (swaps, options, etc) and protect cash flows. 4️⃣ Misinterpreting Negative Operating Cash Flows ↳ Negative operating cash flows aren't a negative sign unless they're due to underlying financial distress ↳ Secure suitable working capital financing and avoid overtrading 5️⃣ Relying on One-Time Positive Investing Cash Flows ↳ Selling non-redundant assets to fund ongoing operating deficits can hide structural challenges ↳ Resolve underlying profitability issues early and seek sustainable financing solutions 6️⃣ No Growth Working Capital ↳ Failing to adequately finance growth working capital can slow expansions and deplete cash reserves ↳ Negotiate suitable working capital financing to fund current asset growth 7️⃣ Mismanaging Payment Terms ↳ Misaligning terms between suppliers and customers can lead to cash flow shortfalls and liquidity issues ↳ Negotiate terms that complement your cash flow cycle and secure backup financing 8️⃣ Failing to Leverage Cash Management Tools ↳ Manual cash management exposes organizations to errors and suboptimal cash positions ↳ Integrate modern cash flow management tools including automated receivables and payables for improved cash flow visibility and control 9️⃣ Neglecting Cash Flow Forecasting ↳ Lack of comprehensive cash flow forecasting will prevent opportunities and introduce undue risk, threatening business viability ↳ Use both short term rolling & long term cash flow forecasts 🔟 Ignoring Long-Term Strategic Implications of Cash Flow Decisions ↳ Short-term cash management decisions significantly diminish growth ↳ Balance immediate liquidity with long-term vision to align day-to-day needs with long term goals ---- ▶Get my on-demand video course with 5* reviews: The Cash Flow Masterclass: https://bit.ly/3NZJvSO ➕ Follow me for strategic finance, business, and cash flow insights 📌Grab my viral finance cheat sheet pack: https://bit.ly/3T3CtPm ♻ 𝐋𝐢𝐤𝐞, 𝐂𝐨𝐦𝐦𝐞𝐧𝐭, 𝐑𝐞𝐩𝐨𝐬𝐭 to share with your network ♻

34% of SMBs have only a month or less of cash reserves. How do we address this critical issue? Here are 10 essential cash management rules: 1. Understanding Cash Metrics: Focus on operating and free cash flow, not just profits. 2. Building Cash Reserves: Maintain enough cash to cover 3-6 months of payroll, slow months, and unexpected equipment costs. Be cautious in volatile industries. 3. Analyzing Beyond the Bank Balance: Use weekly financial reports instead of just checking the bank balance to better understand cash obligations. 4. Efficient Invoicing: Invoice immediately and manage accounts receivable proactively to ensure quicker payments. 5. Strategic Payment Scheduling: Don’t rush to pay bills; optimize payables for better cash flow and maintain good vendor communication. 6. Inventory Management: Treat inventory as an investment and balance stock levels to avoid cash tie-ups. 7. Growth and Cash Flow: Manage growth carefully by securing credit in advance and understanding the cash conversion cycle to prevent cash shortages. 8. Tax Planning: Treat taxes as a critical expense and work with a knowledgeable CPA to plan for tax implications. 9. Prudent Use of Debt: Use debt strategically to support growth and investment, and maintain diverse banking relationships. 10. Maintaining Flexibility: Develop a flexible business strategy that includes multiple suppliers and cross-trained staff. These strategies can help SMBs manage their cash flow more effectively and safeguard against financial crises. If you want to go deeper, I wrote about this in my newsletter. Please read and subscribe: https://lnkd.in/gP4KXvDU

Businesses die when they run out of money. There is one tool to survive a cash crisis. The 13-week Rolling Cash Flow Forecast 🧵: It is a simple spreadsheet. To forecast your cash precisely by the week. For 13 weeks -- a short enough time to be precise. And just enough time to get ahead of problems. Here’s the Excel template I’ve used (link at end): Step 1: Start with this week. Enter this Monday’s date. We have a column for this week and the next 12. Step 2: Income Fill in your current starting cash on hand. Then the cash coming in this week. Step 3: Expenses List the cash that’s going out from operations. Like rent, salaries, fees, or loan payments. Step 4: Ending cash position Each week, start with the cash on hand. Bring in some more cash. Spend some. Then see what's left for next week. We want our cash to stay above zero. No cash = no business! Steps 5 & 6: Accounts Receivables and Payables Receivable = money owed to us (suppliers) Payable = money we owe (vendors) These are often on terms (like net 30), so we want to forecast when they must be paid We enter current & new ones, and due dates That’s the basic idea. You update things for the next week and beyond. Revise each week and delete the first week. So it’s always up to date for the next 13 weeks. And you can now try to avoid running out of cash. Usually, you're here because your bank account is nearly empty! So now… Your job as CEO is to stretch your cash: •Delay payments •Renegotiate w/ vendors •Expand borrowing •Raise cash •Get paid early •Etc. Buying time to fix the problems that got you in this mess! I am using this spreadsheet format now. In real businesses. As the economy gets worse, more of us will need it. You can find the spreadsheet free on my site at: girdley dot com slash 13weeks

33% of CEOs don't trust their CFOs. The 5 areas I focus on (first 90 days): 𝟭) 𝗥𝗲𝗱𝘂𝗰𝗲 𝗘𝘅𝗽𝗲𝗻𝘀𝗲𝘀 The first thing I do with a new client is lower their expenses. This provides a quick win and frees up resources. Common cost-cutting opportunities I see: • Extra licenses • Unused subscriptions • Costs that feel worth it but are not –– 𝟮) 𝗦𝗵𝗮𝗿𝗲 𝗜𝗻𝘀𝗶𝗴𝗵𝘁𝘀 𝗖𝗹𝗲𝗮𝗿𝗹𝘆 If the books are messy → I clean them up. If the books look good → I put together the core financial statements and make sure everyone understands them. I like to involve the whole team by opening the curtains wide on the company’s financials. This increases trust and accountability. –– 𝟯) 𝗢𝗽𝘁𝗶𝗺𝗶𝘇𝗲 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗣𝗿𝗼𝗰𝗲𝘀𝘀𝗲𝘀 I work with clients to streamline: A) Invoicing Many of the cash flow issues I see with clients can be traced back to slow collections. So I make sure invoices are going out in the correct amount and in an easy-to-understand format. B) Closing the books faster I understand the urge to close the books and move on. But clean books don’t mean much if you don't study them shortly after closing. That’s where I work with clients to get their books ready in about half the time. The result is ample time for reviewing performance. C) Monthly financial reviews A good financial review = meeting with the accounting team to study the P&L and Balance Sheet and investigate any budget variance Your goal is to explain each variance and put together an action plan to reverse any concerning trends. –– 𝟰) 𝗖𝗿𝗲𝗮𝘁𝗲 𝗮 𝗦𝘁𝗿𝗮𝘁𝗲𝗴𝗶𝗰 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗣𝗹𝗮𝗻 We set goals and KPIs, determine what’s doable, and come up with a specific roadmap. For your strategic plan to work, it needs to tie back to the financials and be broken out into manageable steps. –– 𝟱) 𝗜𝗺𝗽𝗿𝗼𝘃𝗲 𝗖𝗮𝘀𝗵 𝗙𝗹𝗼𝘄 𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁 I’ve yet to work with an SMB that didn’t have any room for improvement here. Collections tend to cause the lion’s share of cash flow issues. But clients often overlook the other side of the equation: when and how they pay their own bills. It’s pretty common for owners to pay bills as soon as they get them. But I don’t recommend it. It's better to wait until the day they’re due and set them up for autopay. This way you keep cash in the business longer without running the risk of dinging your credit. Took me a LOT of scrambling in my early days to have this clarity... But after helping over 75 SMBs, I feel confident these are the first steps a CFO should take with a new client. If you enjoyed reading this, let me know and follow me for more strategic finance, SMB, and business content. — Need help with your finances? Feel free to send me a DM. Always happy to help.

82% of small businesses don’t fail because the idea was bad. They fail because the cash ran out. And not always in dramatic ways. You don’t need to be hemorrhaging money to have a cash flow problem. → Maybe your customers are paying 30, 60, or even 90 days late → Maybe your growth is outpacing your ability to collect cash → Maybe you're spending based on ARR, not what actually landed in your bank account These aren’t finance problems. These are timing and visibility problems. Founders love to brag about MRR. But MRR doesn’t pay payroll. Cash does. I’ve seen 7-figure run rate startups sitting on the edge of collapse because no one was watching: → Payment terms → Collections strategy → Vendor timing → That sneaky working capital cliff inside the forecast Sometimes the P&L looks great. You’re profitable on paper. But your bank account tells a different story. Here’s what I tell the founders I work with: Don’t treat cash flow as a bookkeeping task. Treat it like a core decision-making tool. → Is your next hire funded by actual cash or hopeful projections? → Are your runway calculations accounting for delayed receivables? → Have you stress-tested your next funding round against your burn rate? Cash flow isn't about being conservative. It’s about surviving long enough to win. Because startups don’t go broke from lack of vision. They go broke from timing mismatches, no scenario planning, and zero visibility. Map your cash flow. Stress-test it. Know your burn, your buffer, your breakeven. The stress? That’s optional. But the discipline? That’s survival. What’s the first thing you check when you feel something’s off in your business?

The phone is ringing with clients asking for your help. Revenue is increasing. Your associates are working very hard. You meet deadlines, deliver great work products, and answer all questions. And still… Cash flow is negative. You have more bills to pay now—including payroll—than you have money to cover them. You ask your accountant or CFO for help, and they tell you to do a 13-week cash flow forecast. Before you even bother, you know it will forecast negative cash flow for the next 13 weeks! I had a heated exchange with a CFO and self-appointed cash flow expert last week. He lists more than 100 ways to generate cash. But… He ignores the single most powerful, reliable, and everlasting way to improve cash flow. What is that? Your firm’s terms and conditions. When your terms and conditions require payment in advance you will never suffer from negative cash flow. Terms and conditions are part of your offers. Most professional and business services firms focus on what clients want and the tasks required to give the client what they want. The outcome of this focus ends up in a proposal. The proposal has a scope or list of the tasks. Even when the price or fee quoted is a flat fee, such as: ·       A lawyer with a flat fee for forming an LLC. ·       A mediator with a flat fee for a mediation. ·       A trainer with a fixed fee for a training session or class. ·       A PR company charges per piece written. ·       A compliance expert charges for each system they evaluate for compliance. The terms and conditions require payment after completion of the work! And the terms usually are 30 days. Which means your firm does work today, sends the invoice on some (later) date built into your invoicing system, and then gives the client 30 days to remit payment. You are causing your own negative cash flow! These two changes will create positive cash flow: 1) Terms and conditions require payment in advance. No ifs, ands, or buts. Without payment in advance, you do not do the work. If a client or prospect objects, they are a poor fit client. Let them go. 2) Change your pricing model to one that is not based on an unknown variable such as hours worked. My preferred pricing model is IMPACT Based Pricing that reflects the life changing differences you deliver to your clients. A helpful transition to or substitute for IMPACT Based Pricing is simply charging a fixed or flat fee. You are experienced in the work you do. You know what is involved in 99% of the work people hire you for. Set a fixed price and use it for a month. If you feel it’s not the right price, change it. Create positive cash flow. You have ALL the power to create positive cash flow. --Your pricing model --Your terms and conditions. --Your invoicing system When was the last time you looked closely at your proposals and your terms and conditions? If it’s been a while, it’s time for a fresh look. DM me to talk about a next step. #termsandconditions

Common Mistakes in Cash Flow Management (and How to Fix Them) Cash flow is the lifeblood of any business. Poor cash flow management can lead to financial struggles, even for profitable companies. Avoiding common mistakes can help businesses maintain stability, grow, and stay competitive. Here are some of the most frequent cash flow pitfalls and how to fix them. 1️⃣ Ignoring Cash Flow Forecasting 🔹 The Mistake: Many businesses focus solely on revenue and profits but fail to forecast cash flow accurately. 🔹 The Fix: Implement regular cash flow projections to anticipate shortages and surpluses, allowing for better financial planning. 2️⃣ Overestimating Revenue & Underestimating Expenses 🔹 The Mistake: Businesses often assume payments will arrive on time while underestimating operating costs. 🔹 The Fix: Use conservative estimates for revenue and build a buffer for unexpected expenses to ensure financial stability. 3️⃣ Poor Accounts Receivable Management 🔹 The Mistake: Allowing overdue invoices to pile up can disrupt cash flow. 🔹 The Fix: Set clear payment terms, offer early payment incentives, and follow up promptly on outstanding invoices. 4️⃣ Excessive Spending & Uncontrolled Expenses 🔹 The Mistake: Growing businesses often overspend on expansion, hiring, or unnecessary expenses. 🔹 The Fix: Monitor expenses closely and prioritize spending on areas that drive growth and efficiency. 5️⃣ Relying Too Much on Short-Term Debt 🔹 The Mistake: Using credit lines or loans for daily operations can create long-term financial strain. 🔹 The Fix: Focus on improving cash flow from operations and reserve debt for strategic investments. 6️⃣ Lack of a Cash Reserve 🔹 The Mistake: Many businesses operate with minimal cash reserves, leaving them vulnerable to unexpected downturns. 🔹 The Fix: Maintain a cash reserve equal to at least three to six months of operating expenses for financial security. Strong cash flow management is key to business survival and growth. By addressing these common mistakes and implementing proactive strategies, businesses can ensure financial stability and long-term success. What strategies does your business use to manage cash flow effectively? #CashFlow #BusinessFinance #FinancialPlanning #Entrepreneurship #Accounting #Finance

I almost went broke twice from low liquidity. Even though I had millions in revenue. Here’s how to make sure you’re never cash-poor (even if you make 7 figures): - Keep 6-12 months of expenses in liquid cash. - Know how to read your balance sheet. Always make sure you have enough cash & cash equivalents to cover short term liabilities. - Never let your lifestyle grow faster than your cash flow. - Use lines of credit before you need them. LOCs are a lot cheaper than having to raise equity capital later! Cash flow isn’t just king, it’s survival.