It’s all about the cash…

I just got back from lovely Madison Wisconsin for some training on the Fintel set of Financial Analysis and bench-marking tools and I had plenty of time to reflect on what is probably one of the biggest issues many businesses face on a regular basis – having enough cash on hand to keep moving.

Photo by Moriza

As a side note, Madison looks to be a great little city with a lot of energy from the UW campus that’s right downtown – however early December probably isn’t the best time to visit.  They had 8 inches of snow and it was cold!  Very picturesque for the holidays and arguably better than the freezing rain I came home to in Kansas City, but still pretty darn uncomfortable.

Anyway, back to the Cash topic.  Fintel, which has several really smart people working for them, has developed a set of Financial Analysis tools that are a better way to assess and manage Small Business financial performance.

The tools were developed to answer 3 very straightforward and critical questions that all small business owners face:

  1. Do we have enough Cash?
  2. Are we profitable enough?
  3. Can we meet our Sales Growth Plans?

There’s a lot behind the tools, but one of the largest components is something called Net Balance Position (NBP) that is used to analyze where your business stands on cash.  The high level definition is:

Working Capital Available


Working Capital Required

Equals the Net Balance Position

It seems overly simple, but that’s actually a big part of the benefit, it can be easily understood at a glance.  If the NBP is a negative number, you have a problem – you need more cash than you’ve got.  If it’s at least zero or preferably positive, then you’re probably in good shape at least from a cash flow perspective, and being in good shape for Cash flow can mean the difference between making it or not making it.

The other thing that got me thinking about Cash tonight was an article I saw in the most recent KC Small Business Monthly that was entitled:  “Cash In On Your Unpaid Invoices”.  The article (and the accompanying advertisement) was on Factoring, which is the process of selling Receivables, at a discount to a 3rd party for collection.  It’s kind of like the small business equivalent to a pay day loan.  You get the cash you need up front in exchange for a discount (according to the article 2% to 6%) on the value of the invoices.

This can be a good strategy for a company that wants to finance growth potential without selling additional equity.  It can also be a good strategy for a business that stumbles somewhere and just needs a quick fix for cash.  As an example, there are Fortune 100 companies that use this strategy all the time to help make their quarterly reports look stronger.

Having said that, before you know if it’s a good strategy for you or not, you have to know how much cash you need – which brings us back to the Net Balance Position analysis.  Not only will the tool calculate where you stand, it also supports a what-if analysis on various ways you might be able to adjust the end result (i.e. what would your cash position be if you could reduce the time it takes you to get paid by your customers by 10 days).

If you’re aware of your position and you can proactively make plans to address it, then you can really start driving your business rather than having your business drive you and isn’t that really the point?

Do you have any Cash stories to share?  I’d love to hear them.

Shawn Kinkade