Big Picture - May 2015 - (Page 18)
business + management
Dollars and Sense
How analyzing financial statements - and watching daily cash flow - can prevent
financial fixes. | by Marty McGhie
BIG PICTURE
May 2015
C
ompanies that go out of business today rarely
do so for a lack of sales. More often, they don't
survive because they don't manage their cash.
With so many different methods to examine a
business, we spend too little time on the most
obvious information at our disposal - our financial statements.
So, how can you use information from your balance sheet to
help identify strengths and weaknesses of your business?
Let's start with cash. If you remember one thing about it,
remember this oft-repeated slogan - "Cash is king." Don't
spend so much time focusing on sales that you forget it. One
suggestion to help manage your cash is to use a daily
reporting mechanism to provide you with information about
your cash balance. For example, in our company we send a
daily email to our management team that includes our current
cash balance, the day's deposits, aged accounts receivable and
accounts payable balances, and upcoming cash expenditures,
such as payroll, tax obligations, etc. Consistent, accurate
information about your cash balances - not guesswork -
should guide your decisions in managing your finances.
Your ability to manage cash is dependent on managing
accounts receivables and accounts payables skillfully. Like
cash, the best way to manage your receivables is to make
sure you have timely information. Reviewing your receivables balance regularly is critical, and your accounting
department is on the front lines of managing these collections. When it comes to collections, the squeaky wheel gets
the grease. If you want to get paid, you must foster open
communication with your customers regarding balances
owed. Establish firm credit application policies and follow
them. If you're uncomfortable extending the credit necessary
for a given job, don't be afraid to request a deposit. Good
customers will work with you in these situations.
The next necessity of a healthy balance sheet is inventory.
Carrying excessive inventory, whether due to improper
management of quantities or allowing for obsolescence,
consumes unnecessary cash from your business. Instead,
instruct your purchasing team to define proper minimum and
maximum order quantities for your key inventory items and
you can avoid this trap. In addition, ask your accounting team
for a monthly spreadsheet detailing your inventory balances,
and study it for anomalies.
As business managers, when we review financials, we tend
to focus more on our assets than on our liabilities - perhaps it's
simply more pleasant to do so. However, getting a handle on
liabilities is every bit as important. Your trade accounts payable
picture will dictate the health of your business. If you're
constantly extending your vendors to beyond 30 to 45 days on
their accounts, do you think you're in their good graces? And
this situation can bleed into your relationships with other
vendors. For example, if you need a top vendor to jump through
some serious hoops to expedite a shipment and you are over 60
days out with some big balances, how willing are they going to
MARTY MCGHIE is VP finance/operations of Ferrari Color, a digitalimaging center in Salt Lake City, San Francisco, and Sacramento. He
is a partner and director of Signs.com. marty@ferraricolor.com
18
http://www.Signs.com
Table of Contents for the Digital Edition of Big Picture - May 2015
Big Picture - May 2015
Contents
Insght
Wide Angle
Upfront
Graphics on the Go
Business + Management
It's Alive
Inked
Expert's Guide to FESPA 2015
R + D
Explorer
Big Picture - May 2015
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