Cash%Flow

May%14th 2019
Curriculum(and(Course(Overview:(Where(are(we?

Ideation)and)Opportunity)Recognition
How$to$recognize$opportunities$and$solve$
problems
Implementing)Your)Strategy
How$to$get$your$business$up$and$
running$and$how$to$manage$people

Developing)Your)Business)Plan Communications
Strategy:$External$forces$and$how$to$align$your$business$to$it Principles$of$effective$
Marketing:$Knowing$your$customer$and$how$to$grow$your$sales communications$skills$and$
Operations:$How$to$operate$your$business$efficiently business$plan$pitches
Finance:$Costs,$contribution,$breakeven,$cash$flow,$valuing$startDups,$raising$
capital
Action$Planning:$Developing$goals$and$a$plan$towards$achieving$them
Agenda

1. What'is'cash'flow?
2. Why'do'we'need'to'understand'cash'flow?
3. How'can'a'business'run'out'of'cash?
4. Cash'Budgeting
5. 7'things'to'remember'about'cash'flow
6. Wrap'Up
Financial'Statements
● Balance'sheet
○ Assets:
○ Liabilities:
○ Shareholder2Equity:

● Income'statement
○ Cash2items:
○ Non;Cash2items:
Financial'Statements
● Balance'sheet
○ Assets:(Economic(value((items(capable(of(generating(money)
○ Liabilities:(Obligations((money(that(is(owed)
○ Shareholder(Equity:(Net(Assets((money(that(is(due(to(the(Shareholders)

● Income'statement
○ Shows(accounting(revenues((sales)(and(expenses((costs)
○ Costs(include(cash(items(and(nonEcash(items
! Salaries(and(rent(are(cash(items
! Depreciation(is(a(non(cash(item
If#you#only#remember#one#thing…
Financial'Statements

● Balance(sheet(and(income(statement(don’t(show(the(timing(of(the(receipt(of(
cash(and(payment(of(bills

● Managing(the(timing(of(receipts(and(payments(critical(for(business’(survival

● If(cash(not(managed(properly,(even(a(profitable(company(can(go(bankrupt
Sources(and(Uses(of(Cash

Why$do$we$need$cash? Where$do$we$get$cash$from?
Sources(and(Uses(of(Cash
Why$do$we$need$cash?
• To#pay#our#suppliers
• To#pay#employee#salaries
• To#pay#rent#and#other#utilities
• To#pay#interest#and#other#loan#payments
• To#buy#equipment
• To#pay#taxes
• To#pay#dividends
Where$do$we$get$cash$from?
• When#our#customers#pay#us
• When#we#take#out#a#loan#from#the#bank#
• When#we#get#a#line#of#credit#from#the#
bank
• When#we#raise#debt#from#bonds
• When#we#raise#equity#by#selling#shares#of#
the#company
 Activity'Time
Memories'Picture'Frame'Makers
Rules
● You%pay%the%supplier%for%the%goods%you%used%in%the%previous%round.%This%will%
automatically%populate%in%excel.%Supplier%ships%only%once%in%each%period.

● Shops%(buyers)%sell%product%on%consignment%model? they%only%pay%
manufacturer%for%the%number%of%pieces%that%are%sold

● Shops%(Buyers)%place%orders%and%receive%shipments%only%once%in%each%period

● Customer%demand%is%variable? shops%(buyers)%let%you%know%about%the%demand%
through%the%orders%they%place%each%period.%This%creates%a%lag%in%information%
receiving
Instructions

● Only%change%the%yellow%values%in%each%round.%You%much%decide%how%much%you%think%
you%should%produce%and%distribute%in%each%round.

● I%will%tell%you%the%customer%demand%(Column%R,%in%yellow)%for%each%round.

● Monitor%your%opening%cash%in%each%round.%If%it%becomes%negative,%stand%up.

● Let’s'play!
Debrief' How+can+a+firm+run+out+of+cash?
Debrief' How+can+a+firm+run+out+of+cash?

● Growing)too)fast)without)planning)for)increases)in)working)capital

● Producing)too)much)Inventory)because)of)overestimating)demand

● Long)credit)period)from)buyers)and)short)credit)from)suppliers

● Extending)credit)to)risky)customers

● Borrowing)too)much@ high)interest)expense
What%happens%if%a%firm%runs%out%of%cash?
What%happens%if%a%firm%runs%out%of%cash?

● Our%suppliers%may%demand%cash%on%delivery

● Our%suppliers%may%refuse%to%deliver%our%products%to%us

● Production%might%have%to%shut%down

● We%may%default%on%our%loan%payments

● We%may%not%be%able%to%pay%our%employees
 Cash% ● Cash$Flow$Statement

Budgeting ● Cash$Budgets

● How$to$improve$cash$flow
How$to$ensure$a$business$does$
not$run$out$cash ● 3$things$to$remember$about$
cash
Cash%Flow%Statements
● Cash&Flow&statement&tracks&where&cash&comes&from&and&where&it&goes

● Different&sources&and&uses&for&cash:
○ Operations
! Buying&and&selling&products
○ Investments
! Buying&equipment&
○ Financing
! Owners&injecting&or&taking&out&money,&getting&a&loan

● It&is&important&to&project&sources&and&uses&of&cash&going&forward&in&time,&to&
make&sure&the&business&does&not&run&out&of&cash
Example(of(Cash(Flow

1.

2.

3.
Cash%budgets%are%very%useful
● Provide%an%estimate%of%cash%inflows:
○ Cash'sales
○ Collections'of'Accounts'Receivable'(A/R)
○ Money'provided'from'bank'loans

● Provide%a%schedule%of%cash%outflows:
○ Payments'of'salaries,'rent,'supplies'and'inventory
○ Payments'of'taxes
○ Purchase'of'fixed'assets
○ Loan'repayments
Example( Ice+Cream+Stand
March April May
Actual Forecast Actual Forecast Actual Forecast

Forecast,sales,(cones) 50 50 60 70 60 120

Opening,Balance $,,,,,,,,,; $,,,,,,,,,; $,,,,,,,,,,,,5 $,,,,,,,,,,,,5 $,,,,,,,,,,15 $,,,,,,,,,,20 Selling'price:'

Add:,Cash,inflows $1/cone''''''''''''''''''
!!!#!of!Cones!x!$1.00 !!!!!!!!!!!!50 !!!!!!!!!!!!50 !!!!!!!!!!!!60 !!!!!!!!!!!!70 !!!!!!!!!!!!60 !!!!!!!!!!120
Deduct:,Cash,outflows
Cost:'$0.50/cone'''''''''
!!!#!of!Cones!x!$0.50 !!!!!!!!!!!!25 !!!!!!!!!!!!25 !!!!!!!!!!!!30 !!!!!!!!!!!!35 !!!!!!!!!!!!30 !!!!!!!!!!!!60
!!!Rent !!!!!!!!!!!!!!!5 !!!!!!!!!!!!!!!5 !!!!!!!!!!!!!!!5 !!!!!!!!!!!!!!!5 !!!!!!!!!!!!!!!5 !!!!!!!!!!!!!!!5
!!!Salary !!!!!!!!!!!!15 !!!!!!!!!!!!15 !!!!!!!!!!!!15 !!!!!!!!!!!!15 !!!!!!!!!!!!15 !!!!!!!!!!!!15
!!!City!license !!!!!!!!!!!!50
Total,outflows !!!!!!!!!!!!45 !!!!!!!!!!!!45 !!!!!!!!!!!!50 !!!!!!!!!!!!55 !!!!!!!!!!100 !!!!!!!!!!!!80

Closing,balance $,,,,,,,,,,,,5 $,,,,,,,,,,,,5 $,,,,,,,,,,15 $,,,,,,,,,,20 $,,,,,,,,,(25) $,,,,,,,,,,60

How$can$you$improve$a$firm’s$cash$flow?
How$can$you$improve$a$firm’s$cash$flow?
● Shorten)collection)period)(A/R)

● Increase)payable)periods)(A/P)

● Increase)prices)or)volume)of)sales

● Reduce)overhead/fixed)costs

● Get)a)line)of)credit/)overdraft)from)the)bank

● Get)a)long)term)loan
Wrap%up
● What&were&the&key&learning&points&from&this&lesson?

● How&does&this&lesson&apply&to&your&own&business?&

● What&will&you&incorporate&into&your&business&plan?
3"Things"to"Remember
1. Cash"is"king"– never"run"out"of"it!
• It$is$what$keeps$your$business$alive.$No$business,$however$good,$can$survive$
without$it
2. Know"the"cash"balance"now
• Even$the$most$experienced$person$will$fail$if$they$are$making$decisions$with$
inaccurate$or$incomplete$cash$balances
• Don’t$rely$on$bank$balance$for$calculationA use$that$only$to$reconcile$your$
numbers
• Record$all$of$your$receipts$and$payments$each$day.$Reconcile$regularly
3. Cash"flow"problems"don’t"just"happenC look"ahead!
• Be$able$to$answer$the$question$“where$do$I$expect$to$be$6$months$from$now?”
• Have$cash$flow$projections$ready$for$next$period
For$next$day’s$case$– Meg’s$General$Store

1. Create(cash(flow(projections(for(Meg’s(General(Store(for(next(6(months

2. What(are(the(key(risks(and(opportunities(for(Meg’s(General(Stores.(

3. What(are(the(main(elements(that(impact(her(cash(flow?

4. Should(she(get(a(loan(from(the(bank?

5. What(else(can(she(do(if(she(doesn’t(want(to(take(a(loan?