The GL Finance Corner: Cash Flow (Part 3)

As we discussed last week, there are different tools to use when managing long-term versus short-term cash flow. Long-term cash planning, discussed last week, starts with putting together a 3–5 year long range plan. Short-term cash planning is more tactical. Understanding the volume and timing of cash-in and cash-out can be very tricky for many. A 13-week cash flow model is the most important cash flow model any company can create. We make it easy by knowing the in’s and out’s of our checking and operating accounts such as: when we pay salaries and other fringe benefits, who the slow paying customers are, what are the expected purchase orders, when we need the next inventory purchase. Having these laid out in a clear, concise manner allows you to adjust business or production velocity to meet your needs.

To figure out your needs, start with your historical accounts payable. Grab the vendors and recent expenses. Then, estimate the accounts receivable you expect to receive over the next 13 weeks. You now have the basic components of a short-term 13-week cash flow. Build in expectations around one-off purchases you may need which are not in your historical data. Remember to add payroll cash outflows. And don’t forget a line item noting the checks that were written last week, but are uncleared. (That money is still in your bank account, but it is not available for use!)

Then: Update it weekly! This is a dynamic tool and needs to be updated weekly. Otherwise, you won’t get the benefit from it. And, remember, cash is king!