Financial Management

Outlook towards maintenance of liquid assets to ensure that the firm has adequate cash in hand to meet its obligations at all times

Answer:

To keep a business running, it usually takes on a lot of financial obligations, including paying employees’ salaries and paying off loans and debts. To appease the various stakeholders, an organization must keep a healthy balance of liquid assets. People will be more likely to invest in, or lend to, a company that has enough liquidity to keep up its payments. However, a company can have too much liquidity, which may be a sign that it's holding onto cash that could be invested.

Examples of liquid assets for a corporation are similar to those of an individual:

·  Cash

·  Funds in the bank

·  Stocks

·  Bonds

Objectives of Managing Liquid Assets:

The objective of liquid assets management prudently strikes a balance between

ü  Protecting against loss;

ü  Ensuring adequate liquidity for day-to-day operations; and

ü  Investing surplus cash profitably.

Companies like to keep things in perspective to understand the big picture. For instance, they keep an eye on their net liquid assets, which is the amount of liquid they'd have if they paid off their current debts and liabilities using liquid assets. They also want to divide the situation into varying time frames. For instance, a company pays attention to the amount of quick assets, which are assets readily convertible to cash. It also calculates how much it has in current assets, which are all the assets it can sell within a year's time.

Considering the available possibilities:

ü  Leveraging shared positions and resources

ü  Becoming a line item in an existing budget

ü  Incorporating activities and services in organizations with a similar mission

ü  Applying for grants

ü  Using existing personnel resources

ü  Soliciting in-kind support

ü  Fundraisers

ü  Using third-party funding

ü  Developing a fee-for-service structure

ü  Acquiring tax revenues

ü  Securing endowments and giving arrangements

ü  Establishing membership fees and dues

ü  Developing a business plan

ü  Creating a for-profit corporation to help pay for the nonprofit side

ü  Have programs be "picked up" by other organizations

Outlook towards forecasting and maintaining cash flow in an uncertain economy:

1. Calculating break-even analysis: Business owners should start the budget process with a break-even analysis, the equation that shows a business’ base cost to provide its product or service

2. Re-evaluating fixed expenses: Many business owners don’t second-guess fixed expenses like rent or insurance when setting their annual budget, even though those base expenses represent the largest bite out of cash flow. From the owner’s perspective, he says, money left over from base costs either goes to variable costs or back to the business as profit; the more tightly it’s monitored, the more could potentially become profit.

3.  Asking for all or a portion of payment up front: There are many products and services that you pay for on delivery or in advance. Asking for at least a deposit up front is a great way to jump-start cash flow. And establishing the policy fairly and properly, it shouldn’t alienate good customers.

4. Schedule a monthly check-up for tax purposes. Business owners perform a monthly analysis of income and expenses so they know through the year what their tax bill will look like. Tax analysis requires keeping books on a cash basis as well as an accrual basis, he says. Most business owners keep books on an accrual basis — recognizing receivables and payables — and then for taxes adjust books to a cash basis — the difference between taxable income collected and cash expenditures made, which is taxable income.

5. Evaluate variable costs every six months. Businesses should regularly — on an annual or, preferably, semiannual basis — audit variable expenses such as office supplies for necessity, which most business owners neglect to do.

6. Sign up for a merchant account:
On already having merchant account, encourage customers to use this option more often. But for speedier cash flow, credit cards can’t be beat. One can get their money fast and customers are accustomed to paying with their credit cards.

7. Manage receivables more closely:

Create a detailed “aging” schedule of what is owed, by whom and for how long. Call overdue accounts quickly, focusing first on the largest amounts due. Ask if there is anything you can do to expedite payment.

8. Creating a cash-in/cash-out  budget :
Note specific due dates for payables as well as receivables. Although the balance between the two won’t always be predictable, the budget can give you a fairly accurate picture of where your business stands in the cash flow derby.

9. Revamping invoice:
A messy, unclear or inaccurate invoice is far less likely to be paid. Make sure that what is send out reflects care and attention to detail just as you would in providing product or service.

10. Offer a discount for overdue receivables:                                                                                                          This can bring some quick cash in the door, but play this card only after calling the customer to ask for full payment. Set a short deadline and make it a sweet enough deal (10-20%) for them to respond.

11. Accelerating invoicing:
Invoices can be prepared in advance, and sent out at the earliest possible moment. More and more small businesses are sending invoices as PDF files via email. This can save days of postal delays. Ask customers if they will accept invoices this way.

12. Cut expenses: Accelerating positive cash flow is great for business, but slowing the negative cash flow has the same effect.

13. Set up a commercial credit line: When it comes to cash flow, small business owners often find themselves in a reactive cycle. Each month starts with the hope that they will come out ahead after payroll, inventory purchases, and other overhead. 

On the flipside, when they come up short, panic blankets the business as the owner frantically scrambles to make ends meet. This cycle can prove exhausting and demoralizing.

14. Devise an inventory management plan

Ø  Keeping markups

Times are tough, which means small business owners should consider slashing prices.

Major markdowns will only have a negative effect on cash flow.

Ø  Plan pre-season to maintain margins

Markdowns usually happen for one of two reasons:

1. The business owner is fearful that the customer will not support prices

2. The business owner has excess inventory he or she needs to shed quickly to maintain a positive cash flow. Pre-season planning is essential.

The way to prevent excessive markdowns is a pre-season commitment to lean inventories.

Managing cost structures:

Fixed costs can kill cash flow, while variable costs can help businesses stay in the red. Rent and utilities can also be translated into variable costs.

1.  Borrowing unnecessarily from the bank - Poor credit rating for not paying suppliers - Unable to expand due to lack of finances - Liquidation / going out of business

2. Cash Flow Process Optimize-Staff to run the business - Premises costs - Stock on hand or to order Customer Order Process Credit Control Invoicing Supplier & Inventory Management Order Fulfilment

3. Cash flow cycle- Order to cash cycle as an example is 14 days Customer Order Process Credit Control Invoicing Supplier & Inventory Management Order Fulfilment

4. Ensuring all the Direct Debit payments / BACS transfers - Identify payment dates for VAT and PAYEE - Identify all suppliers for utilities, telecommunications – Checking balances each day to review forecast - Flexing costs in line with revenues

5. Get several quotes to compare prices - Ask for discounts on early payment - Negotiate better payment terms with suppliers - Ensure having contracts for large supplier - Only pay for goods when due or pay early if discounts are offered 2 Supplier Negotiation Optimize

6. Only buying stock when having a customer order - Ask suppliers for consignment stock - Ensure space effectively to reduce storage costs - Do not set up premises too far away from your customers

7. Perform a Credit Check on large customers - Provide discounts for customers to pay early - Be clear about charging interest on late payments - Provide a contract of service and explain payment terms - Identify the best contact to maintain a strong relationship 4 Customers Optimize

8. Ensure customer orders are worked on as soon as possible - Used scheduling systems to ensure orders are tracked - Quality check goods / services at the point of delivery - Confirm customer is satisfied with the goods / services - Ask accounts to raise an invoice immediately upon delivery - Send invoice with goods / services - Pay staff incentives for good quality, fast order fulfilment

9. Ensure that invoicing immediately after order fulfilment - Make sure that the invoice details are accurate

10. Produce a weekly debtors list and chase debts daily - Sort out invoice disputes before payment terms have been reached - Provide feedback of late payments to relationship manager - Provide customer with payment in installment options - Consider using a debt collection agency company

Conclusion:

Developing a plan for financial sustainability, as with any plan, takes a lot of work to be done right. It's intricately linked with the idea of institutionalizing your organization and its programs as a whole. By creating an effective financial plan, members of your organization will be able to do more to make your vision a reality and have your mission accomplished.