Preface
This book titled “Crisis Cash Management” (CCM) is a no nonsense, information
resource and “how to” guide for any business in a cash crisis. This Guide teaches the
critical art and skills of crisis cash flow management...a term I created to describe
management of the business when the world is closing in due to cash issues. Call
it a “crisis situation” or a whatever you like. The bottom line is the business is in
trouble and needs to bail itself out. CCM is based on sound principals and “trial
by fire” methodologies. It includes practical advice, roles and responsibilities, cash
control, cash flow knowledge and hundreds of experienced based cash recovery
knowledge lessons you can apply in your business right now...today. You don’t have
a minute to loose.
“Cash is definitely King” in personal and business finance. Only cash can pay for
debts of a business...not inventory, good will or high brow branding. It’s true that
most disciplined Managers can operate a business under favorable cash conditions.
It’s when times are tough that Crisis Cash Management (CCM) can help small and
medium sized business owners and managers survive a daily “make it or break it”
cash crisis.
Crisis Cash Management is not about managing cash in banks to achieve
optimum rates of return, nor is it about dividends, macro conditions, or investing
cash. Instead, CCM helps Managers and Owners take control of business cash and
create cash position certainty and positive cash flow. You will use a very granular time
cycle for reporting, analysis and follow up. You will use a “rolling wave of knowledge”
approach to keep the information accurate and current. This book will help you
produce all the information needed and will manage the recovery of the business
during the crisis and beyond.
Crisis Cash Flow Management skills elude many owners and managers. Crisis
Cash Management is just not a routine condition for most Managers....but it must
be understood if the company is going to survive. “Seat of the pants” cash management
methods are not sufficient to recover a declining cash condition.
Even a bad cash management system works when enough cash is coming in.
Crisis Cash Management is not taught in business schools...even though all Business
Majors receive well focused training on the subject. What they don’t teach is
Crisis Cash Flow Management, a unique set of skills akin to that of a survivalist in the
woods...making do with what they have, finding food wherever it lies. Crisis Cash
Management is an “acquired skill”...developed in battle and tested under fire.
xii PREFA CE
Either you acquire the skills or you don’t. If you do, the business survives. If
not, well...someone else will be buying your assets for nickels on the dollar.
Business depressed financial conditions coupled with global declining markets
are forcing even experienced managers to address and become experts in Crisis
Cash Management for the first time. For those brave few, it’s time to acquire Crisis
Cash Management as a new core competency and as a way of business life. This rigid
discipline of perfect cash flow management is making companies agile, leaner and
in the process, survivors. What company would not want to be more agile and leaner
during turbulent times?
When cash flow margins are declining or negative, managers under fire don’t
need long dissertations on cash flow theory or advance cash management techniques.
They need a “basic guide”. One which provides the key skills and advice for
repetitive and sustainable cash and cash flow management techniques...especially
under poor economic market conditions and when cash is just plain absent,
regardless of reason. “Crisis Cash Flow Management” answers these needs with
heavy emphasis on business survival during negative cash flow conditions or when
the business is just losing control of cash flow.
Is your company in a cash crisis? If it is, corporate wealth is decreasing.
If the cash condition is acute...the very survival of the businesses is in jeopardy.
Organization of this Guide
This Guide is divided into two (2) parts:
Part 1: Crisis Cash Management - Information and Opinions
Part 2: Crisis Cash Management Plan – Template
Please read Part 1 first to gain concepts and suggestions that will support Part 2, Plan
Development and Plan Performance. You have several difficult things to accomplish
quickly to gain control of your cash, so try to read Part 1 in one reading. Then read Part 2
in one reading if possible before jumping in.
You should be able to read this complete book in about ten hours at 50 WPM average
speed. However, implementing the information in this Guide can and will take several
days.
For some companies, it might take only a day or two to achieve cash certainty and
full process control. If that reference does not describe your company, then it may take
days of number crunching and some guess work to perform just a few steps. This is almost
always true when cash based information is scattered, missing, or off site. Either
way, it WILL become accurate and well structured for assimilation and analysis.
Your specific success depends greatly on the level of effort applied by all stakeholders.
Good luck, read on, and get ready to go to work....your business might just
depend on it.
Table of Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi
Organization of this Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xii
Part 1 1
Crisis Cash Management – Information and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Problem Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Key Guide Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Guide and Plan Distribution Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Basic CCM Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Profits vs Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
The critical aspect of time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
What is a Business Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Cash flow and money axioms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
What will “Crisis Cash Management” do for my business? . . . . . . . . . . . . . . . . . . . . . . . . .8
The Basics: Cash Flow = Cash Receipts – Cash Disbursements . . . . . . . . . . . . . . . . . . . .9
What is a “cash flow crisis?” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Enterprise failure is a vicious spiral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Difference between “Crisis Cash Flow Management”
and a “Business Turn Around” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
What can Business Manager’s control...How about . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
How do I know if my business enterprise is worth saving? . . . . . . . . . . . . . . . . . . . . . . 14
How long will it take to see results? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Who are the stakeholders of crisis cash management? . . . . . . . . . . . . . . . . . . . . . . . . . 16
Three Step Cash Flow “Triage” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Crisis Cash Management Prerequisites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Critical Success Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
KPI’s and Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
All good efforts worth doing should begin with a “Plan” . . . . . . . . . . . . . . . . . . . . . . . . 19
Has my business accomplished the mission? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
How can I get stakeholders “onboard” and add their support? . . . . . . . . . . . . . . . . . . 20
Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
viii TABLE OF CONTENTS Crisis Cash Management ix
Emotional times require a “level head” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Decreasing spend velocity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Setting spend priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Cash Inflow (Receipts) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Collecting Early . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Late paying customers: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Charging More . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Lowering Costs of Goods Sold (COGS): . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Book: “The 10 Reasons Why Buyers Don’t Buy” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Cash Outflow (Disbursements) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Paying Late . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Paying Less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Temporary or Permanent Pay Cuts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
In labor relations, pay reduction is never “free” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Reduction in Force (RIF) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Reduction in overhead (non-personnel) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Moving the company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
How should I handle emergency “unforeseen’ expenditures . . . . . . . . . . . . . . . . . . . . 38
Putting in new cash (capital...financial blood) into the enterprise . . . . . . . . . . . . . . . 39
Taking on collateral based debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Leverage of bank and supplier credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Make sales which result in “real profit” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Cost Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Selling off assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Selling off inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Expense Accounts and other traditional outflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Part 2 47
Crisis Cash Management Plan - Template . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Part 2: Reading and Application Advice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Overview: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Why is the Plan a “Template”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
A word about data collection and form creation: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Plan Steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Phase 0: Assemble the team and create a sense of urgency . . . . . . . . . . . . . . . . . . . . . 53
Selecting People for the Core Team: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Extended Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Letters of Commitment: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Sample RACI Chart for ALL Steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Phase 1, Step 1: Prepare an “Income History” for past 12 months . . . . . . . . . . . . . . . . 58
Software based database “Report Writers” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Phase 1, Step 2: Analyze inventory and purchase patterns
(by SKU, category or vendor as required) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Phase 1, Step 3: Debt Detail and Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Phase 1, Step 5: Overhead Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Phase 1, Step 6: Direct Expense Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Phase 1, Step 7: Analyze individual expense account relationships to sales . . . . . . 71
Phase 2, Step 8: Prepare an Income Projection using a “Sales Forecast” . . . . . . . . . . 72
Crisis Cash Management in a “Project Environment”: . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Projects: Income Projection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Phase 2, Step 9: Forecast cash outflow by project or business unit
(including prioritizing as required) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
A) Projected Cash Requirements (including prioritizing those requirements): . . . 77
B) Fixed Cash Requirements (Allocations) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
C) Cash allocation for unanticipated priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Phase 2, Step 10: A,B,C Inventory Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Phase 2, Step 11: Reduce Outstanding Debt Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . 85
Phase 2, Step 12: A,B, C, Assets Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Phase 2, Step 13: Overhead and Expense Account Reduction . . . . . . . . . . . . . . . . . . .89
Phase 2, Step 14: Labor Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Phase 3, Step 15: Cash allocation and budgeting in accordance with
known budgets and priorities (customer, project or business unit) . . . . . . . . . . 94
Phase 3, Step 16: Applying the work “real time” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Using the cash position spreadsheet: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Fluctuations in the end numbers and some key questions to ask . . . . . . . . . . . . . . . 99
Daily Work on the Cash Flow Position and Supporting Documents . . . . . . . . . . . . . 101
Phase 3, Step 17: Build a “Cash Cushion” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Phase 3, Step 18: Celebrate the wins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Recognition: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Closing Thoughts: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
The Future: Rising Business Taxes: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Reversing Bad Management and Changing Bad Business Models: . . . . . . . . . . . . . 105
About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Contact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
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