Entrepreneur 1.0 - Session Four - Cashflow Management

Chirag Shah, an MBA and CA, as well as a Partner in the Audit & Assurance Group at PriceWaterhouseCoopers hosted a session on cash flow management for entrepreneurs during Entrepreneur 1.0 session three.

Cash is the lifeblood of any business: without it, even a profitable company can go bankrupt.  In any business, there are only three sources of cash: your customers, lenders, or you (the owner).  To prevent cash shortages, Shah emphasized a few key points:

Be proactive, not reactive.  A new company (and any company for that matter) needs to know its real cash position, not just its bank balance.  To do this, entrepreneurs need to be able to project cash needs and requirements, and plan for unpredictable cash needs (shortages).  By being proactive with cash management, you’ll avoid critical shortages over essential elements such as payroll remittances; tax payments or lease payments  Although using a line of credit is a strategic element of proper business management, fighting fires with credit is not recommended.

Exercise cash management with customers. When you’re dealing with customers, there are many things that can go wrong.  Customers might not pay in time (or at all), clients can back out of potential deals.  As an entrepreneur, there are a few things that you can do to safeguard against a potential cash-shortage due to some of these problems. 

• Know your customer’s credit – do proper due diligence on larger deals
• Build in milestone and progress payments at the outset of a contract – don’t deliver the final project and hope to get paid – make sure to agree on these terms from day one
• Don’t hesitate to follow-up on collections – many business owners try calling a few times and give up, don’t!
• Get to know your customers A/P department – maybe an employee can pull some strings to move your bill to the top of the pile!

Exercise cash management with suppliers. 
• If possible, engage in supplier payment agreements to try and smooth seasonal cash demands
• Join purchasing groups where available to try and take advantage of volume discounts
• Take part in partnership agreements to share some of the risk – dealing with a new supplier can be stressful, why not split the risk?
• Tie incentives to cash, not sales – perhaps your supplier will offer discounts for paying in cash

Know that there are many ‘unconventional’ sources of cash:
• Government sources of cash (provincial cash tax credits, going green incentives, federal/provincial grant programs)
• Consider selling redundant assets
• Leasing vs. buying
• Royalty/licensing agreements
• Outsourcing arrangements

Special thanks to Chirag Shah from PriceWaterhouseCoopers for the great presentation!

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