Cash flow is queen – Top Lessons Learned as a CFO [PART 02]

As a CFO, one of the most important lessons I learned is cash flow management. Cash flow is the lifeblood of any business and it is critical to monitor and manage it effectively to ensure the company’s long-term success.

One of the key strategies I usually implement for our clients is to create a 16-week cash flow spreadsheet that is updated on a weekly basis. This allowed us to clearly understand our cash position and how it was likely to evolve in the short term. We tracked our expected cash inflows and outflows and identified potential cash flow bottlenecks before they became an issue.

One of the most important lessons that I learned through this process was that good things flow up and bad things accelerate down. In other words, positive cash flow trends continue, and negative trends worsen if not addressed.

We focused on improving our accounts receivable (AR) predictability to address negative cash flow trends. We streamlined our invoicing process, accelerated invoice payments, and predicted when clients would make payments. For example, we set up clients on automated clearing house (ACH) payments and recurring payments every month, and we identified when clients typically made their monthly accounts payable (AP) runs. By doing this, we were able to accelerate our cash inflows and better manage our AR.

Another key learning was the importance of managing non-paying clients. If a client failed to pay after 60 days, we took action to address the issue. We found that it was better to lose a customer than to create a large AR balance that we were emotionally invested in or that we might not collect. This allowed us to focus on more profitable customers and avoid losing valuable working capital.

We also learned to manage our accounts payable (AP) as a working capital management tool. By carefully juggling our AP, we managed our cash outflows and ensured that we had sufficient funds available to meet our obligations. We also integrated our estimated tax payments into our cash flow planning, allowing us to manage our tax obligations and avoid surprises.

Overall, by focusing on cash flow management and implementing these strategies, we could better manage our cash position, improve our working capital management, and ensure the company’s long-term success.

As a CFO, I learned that cash is king and that managing it effectively is critical to the success of any business.