Managing the cash flow fire drill

Carefully managing your business’ cash flow is critical as we head into the second year of the recession. There seems to be no end in sight with economists routinely delaying their forecasts for an economic recovery.

Here are a few financial practices to consider, especially if your business operates with significant debt:

• Develop a rolling 13 week cash flow forecast and continually update it

• Check and re-check debt covenants; stay in close touch with your lenders

• Review ALL financial documents for cross defaults, debt ceilings, rating triggers

• Re-negotiate debt terms and easier covenants where possible

• Plan for any non-cash write-offs or write-downs that might impact covenants – better yet, request that they be excluded from covenant calculations

• Stay in touch with major customers and key vendors

• Maximize available credit by carefully monitoring accounts receivables aging

• Watch out for inventory shrinkage – in this environment, inventory left on the shelf is like produce – it rots

• Anticipate collateral calls from insurance products, hedges, or other instruments

These practices will not solve all of your problems but being prepared is far better than being blindsided by a sudden crisis.

Comments

[Bill Warner]

Boy, I can't tell you how important this guidance is. All companies should be tightening their cash management practices. In addition, they should be taking a long and serious look at their revenue forecast and cutting cost and expense to an affordable level under that forecast. Getting more money this year from priviate equity sources will be very hard. You need to conserve cash.

[Wayne Wilson]

Bill, I absolutely agree. The real challenge is getting business owners and managers to take these steps before a crisis arrives at their door.