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Cash Management
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FIGURE 12.1
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Cash Management
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Order
Goods
Day 1
Receive
Goods
Sell
Goods*
Pay
Invoice
15
14
Deliver
Goods
40
Send
Invoice
Customer
Pays**
280
25
178
50
365 days
2.05 times/year
= 178 days
365 days
= 50 days
7.31 times/year
FIGURE 12.2
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1. Cash Finder
2. Cash Planner
3. Cash Distributor
4. Cash Collector
5. Cash Conserver
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Cash profits.
Profit is the difference between a
companys total revenue and total
expenses.
Cash is the money that is free and
readily available to use.
Cash flow measure a companys
liquidity and its ability to pay it bills.
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Cash Flow
Increase in Cash
Cash
Leakage
Accounts Receivable
Decrease in Cash
Accounts Payable
Cash Sales
Production/Cash Purchases
Inventory
Leakage
FIGURE 12.3
Ch. 12: Managing Cash Flow
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Determine a
Minimum Cash Balance
Remember Goldilocks, the Three
Bears, and the porridge:
Not too much...
Not too little...
But a cash balance that's
just right ... for you!
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2. Forecast Sales
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Forecast Sales
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Forecast Sales
(continued)
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Forecast Sales
Prepare three sales forecasts:
Pessimistic
Optimistic
Most Likely
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84,000
x 24%
20,160
20,160
x $485
$9,777,600
$9,777,600
x 9.9%
$967,982
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2. Forecast Sales
3. Forecast Cash Receipts
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Monitor closely:
Slow and non-payers.
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Collecting Delinquent
Accounts
Number of Months
Delinquent
93.80%
85.20%
73.60%
57.80%
42.80%
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0.0%
23.60%
13.60%
20.0%
40.0%
60.0%
80.0%
100.0%
Probability of Collection
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2. Forecast Sales
3. Forecast Cash Receipts
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2. Forecast Sales
3. Forecast Cash Receipts
Balance
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Estimate
End-of-Month Balance
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Accounts Receivable
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FIGURE 12.5
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Accelerating
Accounts Receivable
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Day 0
$980
$1,000
10
30
20 days
R =
I
PxT
$20
$980 x 20/365
= 37.25%
FIGURE 12.6
Ch. 12: Managing Cash Flow
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Conclusion
Cash is King
Cash and profits are not the same.
Entrepreneurial success means
operating a company lean and mean.
Trim wasteful expenditures.
Invest surplus funds.
Plan and manage cash flow.
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