Marine Fabricator September/October 2020 - 38

ShopTalk Business

Cash ﬂow management
By Mark E. Battersby

C

"Although seemingly
counterintuitive,
many experts
advise putting cash
ﬂow management
before proﬁts."

ash flow is the lifeblood of every
business. In fact, according
to a recent U.S. Bank study,
poor cash flow management causes
82 percent of U.S. business failures.
Although seemingly counterintuitive,
many experts advise putting cash flow
management before profits.
While profits are how a fabrication
business survives, a failure to manage
the operation's cash flow can mean
running into problems that one
profitable accounting period might not
be able to offset. Another study, this
one by Intuit, revealed that 61 percent
of small businesses around the world
struggle with cash flow and 32 percent
are unable to pay vendors, pay back
pending loans, or pay themselves or their
employees due to cash flow issues.
Cash ﬂow management 101
In essence, cash flow is nothing more
than the movement of money in and
out of the business. Cash flows into the
business from sales of goods, products
or services. Money flows out of the
business for supplies, raw materials,
overhead and salaries in the normal
course of business.
An adequate cash flow means a steady
flow of money into the business in time
to be used to pay those bills. How well
the fabricating professional manages the
operation's cash flow can have a significant impact on the bottom-line profits
of the business.
Often, an operation's cash inflows
will lag behind its cash outflows, which
leaves the business short of money. This
shortage, or cash flow gap, represents an

excessive outflow of cash that may not
be covered by a cash inflow for weeks,
months or even years.
Properly managing the operation's
cash flow allows that cash flow gap
to be narrowed or closed completely
before it reaches the crisis stage. This is
usually accomplished by examining the
different items that affect the operation's
cash flow-and looking at the various
components that directly affect cash
flow. This analysis can answer important
questions such as the following:
* How much cash does
the business have?
* How much cash does the
business need to operate
and when is it needed?
* Where does the business get its
cash and where does it spend it?
* How do the operation's income and
expenses affect the amount of cash
needed to operate the business?
Controlling inﬂow
In a perfect world, there would be a
cash inflow, usually from a cash sale,
every time there is an outflow of cash.
Unfortunately, this occurs very rarely in
our imperfect business world, thus the
need to manage the cash inflows and
outflows of the business.
Obviously, accelerating cash inflows
improves overall cash flow. After all, the
quicker cash can be collected, the faster
the business can spend it. Put another way,
accelerating cash flow allows a business
to pay its own bills and obligations on
time or even earlier than required. It may
also allow the business to take advantage
of trade discounts offered by suppliers.

38 Marine Fabricator | Sept/Oct 2020

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Marine Fabricator September/October 2020

Table of Contents for the Digital Edition of Marine Fabricator September/October 2020
