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How Outsourced CFOs Determine Where Cash is Coming From and Where It's Going

Posted by Joerg Joergensen on Dec 18, 2019 9:21:00 AM
Joerg Joergensen
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In a recent webinar, Top 10 Outsourced CFO Quick Wins, we asked owners of accounting firms about the cash flow status of their clients. Nearly 75% said their clients had so-so cash flow, 17% were flush, and 9% were an accident waiting to happen.  These results echoed a common theme: businesses have a hard time managing cash and lack understanding of their dynamics.

How Outsourced CFOs Determine Where Cash is Coming From and Where It’s Going

One of the critical duties of an Outsourced CFO is an educator. They are tasked with teaching executives that profit and cash are two different things.  In addition, liquidity may be the most important factor that indicates if a company will survive.  It’s your job to find out the cash position - immediately, so you can accurately gauge the health of your client’s company.

How to Do a Near Term Cash Flow Forecast

Calculating your client’s liquidity will put you on the fast-track to understanding the details of company operations. Here’s how to become your company’s most important advisor.

  1. Start with a clean spreadsheet. You’ll be tracking
    • 13-week historical spend (past 90 days)
    • 13-week projected spend (future 90 days)
  2. Enter what’s been spent for the last 13 weeks using bank statements and other payment histories.
  3. Enter what is due to be paid in the next 13 weeks, in this order:
    • Fixed payments: Leases, payroll, taxes
    • Overhead: Utilities, etc.
    • Vendor payments
  4. Enter estimated revenue streams for the next 13 weeks
    • Review aged Accounts Receivable for collection opportunities
  5. Calculate cash flow gaps

3 Benefits of a Cash Flow Forecast

The first thing you’ll find is that you don’t have all the answers.  You’ll have to interact with other departments to find out what they are spending to provide the answers you need for your forecast. As a person who is new to the team, this will give you a chance to build relationships across the organization.

Secondly, you’ll understand where the company is vulnerable from a liquidity standpoint and make recommendations for immediate action.  If your client is truly on the verge of a cash crisis, you’ll be challenged to use your best communication skills and become a strategic member of the leadership team.

Finally, your cash flow analysis will set the stage for disciplined, long term results.  Your 13-week analysis will address immediate issues and help you create a plan for the next one to three years.  By reviewing your cash flow plan weekly and sharing your results, you’ll help everyone in the company stay on track for the long term.

Chief Financial Officer or Cash Financial Officer?

As an outsourced CFO, you’re in charge of the lifeblood of the business: cash.  We’ve developed a webinar that helps leaders like you understand what you need to do on day one to be successful as an Outsourced CFO.  Watch our webinar recording, Top 10 Outsourced CFO Quick Wins, to find out more about serving your Outsourced CFO clients.

Top 10 Outsourced CFO Quick Wins | Watch the Recording

Topics: Outsourced CFO

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