Case Study 6 – Avoiding A Cash Flow Disaster

How To Detect Cash Flow Problems And Save Money

All businesses must manage their cash flow.  Many small businesses just watch their checking account balances and assume that is sufficient.  Outstanding checks are ignored in this case and that can have disastrous results.  Some businesses will keep their check ledger balance, which is better, but that still doesn’t take all factors into account that will result in sound cash management.  Some businesses also neglect to monitor cash flow indicators and view regular cash flow reports.  So most small businesses manage their cash flow by the seat of their pants and leave themselves open to unnecessary financial risks also tying up cash that could be utilized for something else.

Identified a serious cash flow threat saving the company over $10k through early detection by establishing sound accounting policies and procedures for the company

I adopted a cash flow reporting procedure that involved weekly cash flow reports.  These reports would not only include the daily cash balances for the week in all company bank accounts, but also included cash projections based on the Average Collection Period (ACP) of our receivables, and the Average Days Outstanding (ADO) of our payables, particularly our payments to critical independent contractors.  This could vary significantly due to the type of terms in agreements with our independent contractors.  These reports would paint a picture of where cash was coming from and where it was going.  It would also allow me to have a comfort level that there would be sufficient cash to pay the projected payables coming due over the following week. I would also see if a problem was emerging by seeing a change in the trends.  This happened when a manager took it upon herself to take advantage of an exception in policy regarding payable terms with our independent contractors and started granting more generous terms than was authorized.  As a result, about two weeks into the changes in contracting terms, the cash flow report began showing excessive cash out.  This is a trend that, if continued, could have overdrawn the checking account in about 4 weeks.  Immediately acting on this finding avoided the consequences of over $200,000 of bounced checks.  The overdraft fees, administrative costs, and loss of business would have easily totaled over $10k.

Other Case Studies

1. Case Study 1 – Solving an Industry Problem
2. Case Study 2 – Implementing Competitive Advantage
3. Case Study 3 – No Exception IRS Audit
4. Case Study 4 – Performance Based Hiring System
5. Case Study 5 – A Killer Lead Generation System
6. Case Study 7 – Saving Money On Insurance Premiums
7. Case Study 8 – Maximizing Customer Satisfaction
8. Case Study 9 – Training New Employees For Less
9. Case Study 10 – Employee Coaching Meetings
10. Case Study 11 – Business Systems Strategy
11. Case Study 12 – Improving Working Relationships
12. Case Study 13 – Increasing Client Conversion Rates
13. Case Study 14 – Delivering on a Promise
14. Case Study 15 – Solving Fatal Problems
15. Case Study 16 – Establishing An Accounting System
16. Case Study 17 – Staying on Top of Mind
17. Case Study 18 – Improving Implementation
18. Case Study 19 – Product Strategy That Sells Customers
19. Case Study 20 – A Quality Production Process