Is Cash Really King?
Most of us talk-the-talk. Few of us walk-the-walk. I won’t spare you the speech on the importance of cash flow. We all know that managing a healthy cashflow is a cornerstone to running a successful business. In today’s pandemic environment, however, more diligence than ever is required to keep cash flow in check.
Going into the second year of the “New Times” (post-COVID reality), business leaders need to have progressed past the first stage of grief (denial). PPP2 has been approved at near half the level of PPP1 and with more restrictive qualifications. Biden’s stimulus proposal, as rich as it is, does not even contemplate PPP3. It’s a great time to mentally jump to acceptance and move forward.
Most businesses are great at putting together Statements of Cash Flow, to go along with the balance sheet and P&L. In the “Before Times”, this was usually adequate, as long as you also brow-beat the Ops team with DSO and Inventory Turn metrics. In the New Times, however, this tool set leaves you woefully blind and unable to respond proactively, with the true precision you really need.
The 13-Week Cash Flow (TWCF)
This is the ante for modern cash management. Traditionally, this only pops out in the distressed investing world, as lenders demand greater visibility and accountability to cash flow. Lenders have been managing risk for thousands of years and know how to spot red flags. There’s a reason they require TWCFs in distressed situations. Done correctly, a TWCF process exposes risks and opportunities in cash management that are otherwise obscured by traditional GAAP accounting.
Speaking from experience, one could easily and legitimately bury a significant cash use across the balance sheet and P&L, such that it wouldn’t raise an eyebrow in a thousand business reviews. Tuck a little here, flush a little there… An effective TWCF process would shine light in corners you’ve never seen.
It’s not easy. It’s not something you just throw at the same F&A team struggling to get cost center reports published. It takes muscles that aren’t organic to most business.
If you’re looking to take your Cash Management game to the next level, this is the way to go. You shouldn’t wait until some outside stakeholder requires it. Cash is King, right?