We can safely say that this time, we really whipped the cash flow into shape. The company we helped with financial management manufactures wood products, primarily various home and fashion accessories. The business was doing well. But the creators of these stylish wooden pieces were sawing off the branch they were sitting on.
Why did the client invite us?
There were two main reasons:
1) Cash flow issues
The client was paying high taxes and was unable to meet their liabilities, mainly due to the seasonal nature of their business.
2) Considering an investment in a new machine
But they were unsure whether they could afford it.
What was the situation in the company at that time?
The client had a basic overview of their monthly expenses, but did not manage them comprehensively.
They did not connect what was in the accounting with the actual business results. They primarily focused only on the cash flow perspective. As the saying goes… they couldn’t see the forest for the trees.
How did we solve the problem? And did we need to push hard?
- As with every project, we went back to the absolute basics: we requested all available financial data. That meant accounting records and management spreadsheets, including inventory records and access to the e-shop.
- Together with our analyst, we discovered from the numbers that the client’s business was profitable and the pricing was set quite well. However, it was confirmed that due to the high loans they had to repay, they were unable to pay other operational liabilities. Most importantly, financial planning and evaluation were missing.
- After evaluating all documents and possible solutions, our team, led by a fractional CFO, set up the appropriate financial reporting (P&L + cash flow) and prepared a forecasting model, thanks to which the company management now has a quality overview of their business. In cooperation with the client’s external accountant, we prepared a new chart of accounts.
What results did it bring?
Thanks to this model, the company instantly knew when it would run out of cash and would have to make decisions to save corporate cash flow until their loans were paid off.
Meanwhile, the wooden products were being bought in bulk. Huge customer demand confirmed the results of our sales analysis. The company bought the new machine, even though it meant another loan. However, we calculated everything to make it clear when the investment would pay off.
And what is the takeaway for you?
Give financial and cash flow planning the priority it deserves. Managing a business based on financial results truly matters. It is not just about the cash balance in the account. Cash flow is mainly about planning – only then will it not cause you problems.
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FINANCIAL REPORTING SETUP
The company already knows the real business results -
INVESTMENT IN A NEW MACHINE
Despite a heavy debt burden, we calculated that further investments will quickly pay off -
FORECASTING MODEL SETUP
Company management instantly sees when the cash will run out
Don’t wait for the market to sand you down; set up regular financial reporting in your company. And plan! Not for nothing do they say… measure twice, cut once.