Cash Flow Forecasting

Cash flow management starts with revenues and expenses. Businesses often have more control over these areas as opposed to outside financing, third-party vendors, or customer collections. Also, your ability to forecast can help with other decisions, such as reducing inventory purchases to match expected sales reductions.

• Offer creative revenue promotions.
• Provide multiple payment options, such as electronic payments and credit cards.
• Consider alternative revenue streams.
• Minimize variable costs, such as travel, R&D, entertainment, etc.
• Evaluate labor costs intelligently (voluntary employee leaves, furloughs, minimize overtime, reduce hours, etc.).
• Convert fixed costs to variable costs (sale-leaseback, contract manufacturing, vehicle and equipment leasing, third-party warehousing, etc.).
• Audit or review vendor invoices carefully.

The cash conversion cycle consists of inventory, receivables, and payables. In general, companies should look for ways to decrease days in inventory and days in receivables (collections) while increasing days in payable.

• Provide incentives to accelerate collections.
• Send invoices promptly and more frequently (or early if possible).
• Revisit past-due accounts.
• Request deposits or retainers.
• Negotiate vendor payment terms, or request more services from your vendors.
• Review inventory management processes such as input costs, bulk purchasing, material waste/spoilage, etc.
• Consider just-in-time inventory purchasing or ways to reduce supplier lead times.
• Improve forecasting accuracy by matching projected sales with inventory purchases.

Fixed assets are required for most businesses, and the cost to maintain fixed assets can be significant.

• Defer capital expenditures where practical.
• Sell or lease non-essential assets.
• Evaluate options to lease vs. purchase.
• Obtain multiple bids on large purchases.
• Carefully evaluate and manage costs on capital projects.

Businesses may need to rely on debt more heavily during times of crisis. While debt can provide relief, the money is not free. Businesses should carefully asses credit options and the amount needed to get them through a crisis.

• Evaluate flexible financing options and stay in close communication with your credit providers.
• Understand government financing programs, guidelines, and processes.
• Be open to creative alternative sources, such as private equity and insurance vehicles that can provide sources of capital.
• Improve financial reporting and transparency with lenders – don’t hide surprises.