How can CFOs stop cash leaks and drive growth?

How can CFOs effectively manage cash flow while driving growth?

In this webinar, we discussed critical strategies for optimizing cash flow and fueling business growth with Steve Rosvold, founder of CFO.University.

With 58% of CFOs ranking cost optimization as a top concern and 63% relying on internal cash flow due to economic uncertainty, it's crucial to address cash management challenges. But how can CFOs ensure they're making the most of their available cash while positioning their companies for growth?

From avoiding common pitfalls to implementing advanced working capital strategies, Steve shares real-world examples and experience-backed insights to help CFOs optimize cash flow and drive sustainable business growth.

Key Insights:

• 13-Week Cash Forecasting: Implement a 13-week cash forecast to maintain liquidity and proactively manage cash needs.
• Optimizing the Cash Conversion Cycle: Focus on reducing Days Sales Outstanding (DSO), improving inventory turnover, and negotiating better payment terms with suppliers.
• Cross-Functional Cash Literacy: Educate your teams on cash management principles to enhance collaboration and improve financial decision-making across the organization.
• Strategic Capital Planning: Align your capital planning with growth objectives to effectively manage debt while scaling operations.
• Managing Variable Revenue Streams: Stabilize cash flow by implementing minimum payment thresholds and balancing fixed and variable charges.

These actionable insights are crucial for CFOs aiming to enhance financial stability and support their company's long-term growth.

Speakers

Steve Rosvold, Founder at CFO.University

Saurabh Agrawal, Cofounder and CPTO at Zenskar

Webinar summary

Q. What should a CFO focus on when they join a company with cash flow challenges?

The first step is to create a cash forecast, particularly a 13-week cash forecast. This method provides insights into actual collections, payments, and deliveries. It helps CFOs understand the business's operating capital on a weekly basis, identify cash flow anomalies, and learn the business mechanics effectively.

Q. How does a 13-week cash forecast help in cash flow management?

A 13-week forecast, using the indirect method, helps CFOs gain clarity on cash inflows and outflows, even highlighting anomalies like late deliveries or payments. It's a vital tool for monitoring cash flow against projections, offering a deeper understanding of working capital.

Q. How do you go about managing cash flow in a new business?

CFOs should create a cash forecast right away. This allows for a weekly view of the company’s cash situation. By comparing actual results with projections, you can spot discrepancies, track payment terms, and identify issues like delayed shipments or payments. This hands-on forecasting helps uncover critical cash management insights.

Q. Should a CFO work with other departments to improve cash flow literacy?

Yes, it’s essential for the CFO to promote cash literacy across the organization. Sharing cash forecasts with teams and educating them on the cash conversion cycle will help everyone understand how their roles impact the business's cash flow. This collaboration is key for effective cash management.

Q. How can CFOs educate their teams on cash flow and its impact?

CFOs need to foster an understanding of the cash conversion cycle and the broader cash management process. This can be done by sharing cash flow forecasts with key teams and providing training on how departments like sales and operations affect the company’s cash flow.

Q. What cash flow challenges do CFOs commonly face in growing companies?

CFOs face challenges such as liquidity, capital raising, and cash forecasting. Rising interest rates have made capital more expensive, and cash forecasting can become difficult when companies deal with fluctuating revenues, especially in industries with seasonal sales or long sales cycles.

Q. How can companies optimize their cash conversion cycle to improve cash flow?

Understanding the cash conversion cycle is critical. This includes managing days sales outstanding (DSO), days inventory, and days payable outstanding (DPO). By tightening each of these areas, businesses can generate cash more efficiently. Reducing DSO, improving inventory turnover, and extending payables can significantly improve cash flow.

Q. How can technology help CFOs manage cash flow more effectively?

Technology can automate processes like cash forecasting, invoice tracking, and payments. Tools like cash velocity calculators allow CFOs to track cash flow metrics, ensuring they can spot issues early and make data-driven decisions to optimize cash flow.

Q. How do cash flow management strategies vary between industries?

Industries like SaaS typically have more predictable cash flow due to subscription models, whereas manufacturing businesses might deal with longer lead times and larger inventories. Understanding the unique challenges of your industry allows for tailored cash flow strategies. For example, in SaaS, ensuring timely payment for subscriptions and monitoring usage-based billing is key, while in manufacturing, managing inventory and vendor relationships is crucial.

Q. What cash flow strategies should be in place when a company is scaling?

As a company grows, it's essential to maintain a capital plan, ensuring there’s enough cash to fund growth initiatives like hiring, R&D, and new equipment. Growth can put stress on cash flow, especially if the company doesn’t carefully plan how to manage working capital. A balance between short-term forecasts and long-term capital planning is crucial.

Q. What strategies can companies with long sales cycles use to manage cash flow?

Companies with long sales cycles need to have a strong cash flow forecast to anticipate the delayed revenue. CFOs should ensure that their sales team is aware of cash flow implications and work on reducing DSO. Additionally, companies should evaluate customer creditworthiness to minimize the risk of unpaid invoices.

Q. How can companies improve customer payment timeliness?

By setting clear payment terms and communicating those effectively, companies can ensure that customers are aware of their obligations. In some cases, technology can help by providing real-time tracking of receivables and sending reminders. Having a strong collections team and maintaining good customer relationships is also key.

Q. How can vendor payment management impact cash flow?

Extending payment terms with vendors can help improve cash flow, but it must be done strategically. CFOs should negotiate with suppliers for better terms, ensuring they don’t overextend credit. Efficient vendor management helps reduce the financial burden, improving liquidity.

Q. Are there any risks associated with taking deposits from customers for cash flow?

While taking deposits can help with cash flow, it’s important to ensure that the margin on products or services is strong. If margins are too low or fluctuating, deposits can create a false sense of security, leading to cash flow issues later. Always ensure that your margins are properly managed before accepting large deposits.

Q. How can a business manage cash flow across multiple countries?

Managing cash flow in a global business involves coordinating intercompany transactions and understanding currency exchange risks. CFOs need to ensure that financial teams in each country understand the company’s global cash management strategy. Regular communication and cash flow forecasting between subsidiaries can help avoid inefficiencies and optimize global liquidity.

Q. How can a startup improve its cash flow forecasting?

Startups should use short-term cash flow forecasts, like the 13-week forecast, to keep track of immediate financial needs. Forecasting helps predict cash shortages or surpluses, enabling better decision-making. It's also important to regularly review the forecast and adjust based on actual results.

Q. How can companies improve cash flow management when customer payments are delayed?

CFOs should monitor days sales outstanding (DSO) closely and address issues proactively. Clear communication with the customer is essential, and in cases where payments are late, the sales team should be involved in resolving the issue. Offering incentives for early payment or adjusting payment terms can also help.

Q. How can companies optimize their cash conversion cycle to improve cash flow?

CFOs should focus on reducing days sales outstanding (DSO), speeding up inventory turnover, and extending days payable outstanding (DPO). By improving these areas, companies can ensure they free up more cash to reinvest in the business and reduce the pressure on working capital.

Q. How does managing vendor payments impact cash flow?

By negotiating favorable payment terms with vendors and ensuring prompt payments, companies can retain more cash in the business. Vendor relationships play a significant role in optimizing cash flow, and it's essential to balance strong relationships with effective cash management strategies.

‍