Succeeding in turbulent times: Managing your cash

This is the first in a four-part series of articles following the Succeeding in Turbulent Times seminar that KPMG hosted with the Chamber.

Cash is king is a phrase often heard, widely quoted and unfortunately, largely misunderstood and misapplied in practice.

For cash to act as king, it must be treated that way; with a deep respect. The importance of cash and how to use and collect it should be communicated and understood by anyone in an organisation that is connected to it. Depending on the size of your organisation, it may be useful to establish a cash committee that can focus on and drive necessary changes.

By creating a cash culture in your organisation you are not only taking the first and most vital step in response to the global financial crisis, but setting the foundation for future prosperity and success. The steps in cash management include:

Calculate your cash position – where are you starting from?
Perform a detailed reconciliation of your cash position from your bank statements and identify your actual cash position. This is your base number and will allow you to better forecast and identify if and when cash shortages may arise.

Prepare cash flow forecasts – What does the future look like?
The better your forecasts of future cash flows, the more transparency around the issues and time you will have to respond to the problem. Forecasting identifies the real issues and takes the guesswork out of the situation, thus, providing you the best chance to find the right solutions. Generally, the best forecasts are rolling 13 week, line by line receipts and payments forecasts. Importantly, the forecast should be updated either daily or weekly with the actual cash balances. 

Take action as soon as possible – remove the threat ahead of time.
Through proper forecasting you are in the strongest position to identify future problems. The biggest challenge will be in taking the necessary steps to turn the problem around. This requires a realistic and strong approach. Unfortunately, cash flow issues do not solve themselves and will require a change in your organisations’ use of cash.

Make the hard decisions – be brave and think outside the box.

Be prepared to look at both revenue and costs to eliminate the problem. With a cash culture in place solutions can come from a number of sources within the organisation and open communication about cash and its importance is vital to develop the best approach in managing cash.

By focusing on cash you are able to stabilise the business and set the necessary foundation to not only survive the financial crisis but have a leaner more efficient organisation ready to take advantage of the opportunities that every economic turnaround can bring.

For further information on how KPMG can help you succeed during these turbulent times, contact Simon Whicker on 949-4800.The views and opinions are those of the author and do not necessarily represent the views and opinions of KPMG.