Company Cash Flow Discussion Replies

There have been times in my career when I worked for companies that at least went through periods where cash flow was an issue.  One of the most important strategies I’ve seen employed was being proactive before the issue spirals out of control.

If I were the CFO of a company struggling with cash flow and knowing that in two years this new product is going to revolutionize the industry, I would start with attempting to carefully budget and anticipate how far the current cash flows and reserve (six months) will last and what sort of cost cutting measures can be taken to provide an additional cushion.  To support the effort to budget around this cash issue, I would also want to analyze the cash flow analysis, approach, and tools the company has used historically, we’ll need to track it very closely over this two year period in order to survive.  I would also seek to address any personnel issues that may have been contributing to this cash flow issue, for example are certain departments operating with a decision maker that lacks the skills and experience to manage their team at an optimal level (Market Finance, 2017)?

Then I would consider processes, can terms be negotiated with our customers to receive payments more frequently?  Will our vendors accept longer terms?  Is there an opportunity for a vendor discount; through an exclusive contract for example?  Do we have some items in our inventory which move very slowly?  Are there other parts of the business that are inefficient, perhaps in such areas as labor, occupancy costs, and so on that could be addressed to mitigate this cash flow issue (Schooley, 2020)?

If these initial steps have helped, I would then want to analyze the existing assets and determine if any could be sold without having a negative impact on current cash flow.  During this two year period, rather than purchasing equipment and other assets, I would want to lease these items in order to stretch out the payment process (Schooley, 2020).

Hopefully these initial steps will help when looking into lines of credit and long-term debt that could help the company survive this two year stretch.  If this is a public company I would also consider issuing common stock.  And finally, if we are about to revolutionize the industry and the budget and cash forecasting still suggest that the company cannot survive the full two years, I would want to look into deals that the company might be able make with suppliers, investors, perhaps even competitors that could be used to keep the company cash flow positive until the new product is ready for the market.  Better to sacrifice a portion of the anticipated bonanza from the new product than to have the company go out of business before the new product can be released.

In terms of keeping the stakeholders happy, I am hoping that most of the process, efficiency, and cost cutting measures would have a positive impact for the stakeholders.  Taking on more debt may not have a positive impact during this two year stretch.  It will be important to explain the reasoning behind such a move and create some hype for the upcoming revolutionary product on the horizon.  I would be cautious about issuing common stock, thus diluting the ownership of existing shareholders.  Furthermore, I would be careful making deals that would reduce a portion of the anticipated profits from the new product as the stakeholders are likely going to analyze such a move under a powerful microscope after waiting two years for this revolutionary widget to hit the market.

 

 

References

Schooley, S. (2020, December 23). Struggling for cash flow? Strategies for Survival. Retrieved from Business News Daily:   https://www.businessnewsdaily.com/15017-cash-flow-strategies.html

Market Finance. (2017, August 10). 5 essential cash flow management techniques. Retrieved from Market Finance:   https://marketfinance.com/blog/finance-guides/2017/08/10/5-essential-cash-flow-management-techniques