CASH FLOW ANALYSIS FOR SMALL BUSINESSES AND NONPROFITS The Yellow Springs Community Foundation Presented by: Bob Reynolds, CPA, CGMA rreynolds@bradyware.com (937) 681-5787 C O N F I D E N T I A L
UNDERSTANDING CASH FLOW As we transition to the “New Normal” resulting from the COVID-19 pandemic, it is vital business owners and nonprofit leaders understand their business or organization’s sources and uses of cash as they plan for life after Shelter in Place. Brady Ware Capital, LLC 1
UNDERSTANDING CASH FLOW Cash Flow is essentially the movement of money in and out of your business or organization. This cycle of cash inflows and outflows determines your business or organization's solvency. Prior to the COVID-19 pandemic, poor management of cash flow was cited as the cause for a majority of business and organization failures. Proper monitoring of cash flow is critical for any business or organization. In the wake of COVID-19, monitoring cash flow and effective cash management is more important now than perhaps ever before. Brady Ware Capital, LLC 2
HOW IS A CASH FLOW ANALYSIS PERFORMED? Cash flow analysis involves examining the components of your business or organization that generate or consume cash. Cash flow analysis requires the identification and quantification of cash inflows, such as cash sales to customers, collection of accounts receivable, cash contributions or collection of pledges from donors, and borrowings on lines of credit or bank loans. Brady Ware Capital, LLC 3
HOW IS A CASH FLOW ANALYSIS PERFORMED? A cash flow analysis also requires the identification and quantification of cash outflows such as purchases of supplies and materials, capital equipment, salaries and related personnel costs, payments on lines of credit and bank loans. By understanding these components, you will be able to more easily identify cash flow problems and plan on how to respond to them. Brady Ware Capital, LLC 4
HOW DO WE PERFORM THE ACTUAL ANALYSIS? Let’s keep this simple … Determine your Cash Inflows – Be realistic in estimating sources of cash. – Keep in mind your customers or donors may be experiencing cash flow constraints and may pay obligations more slowly than in the past. Brady Ware Capital, LLC 5
HOW DO WE PERFORM THE ACTUAL ANALYSIS? Let’s keep this simple … Determine your Cash Inflows – Be realistic in estimating sources of cash. – Keep in mind your customers or donors may be experiencing cash flow constraints and may pay obligations more slowly than in the past. Brady Ware Capital, LLC 6
HOW DO WE PERFORM THE ACTUAL ANALYSIS? – Consider offering discounts to customers if they pay quickly. For example, offer a 2% discount if they pay invoices within 30 days. Keep in mind you will need to factor in the discount when estimating the cash to be received. Brady Ware Capital, LLC 7
HOW DO WE PERFORM THE ACTUAL ANALYSIS? – For nonprofit organizations, consider asking donors that have a history of making an annual donation to your organization to do so now. – For nonprofit organizations, now is not the time to slow down on fundraising, it is actually time to step up your fundraising efforts. Brady Ware Capital, LLC 8
HOW DO WE PERFORM THE ACTUAL ANALYSIS? – For nonprofit organizations, consider asking donors that have a history of making an annual donation to your organization to do so now. – For nonprofit organizations, now is not the time to slow down on fundraising, it is actually time to step up your fundraising efforts. Brady Ware Capital, LLC 9
HOW DO WE PERFORM THE ACTUAL ANALYSIS? Determine your Cash Outflows – Be realistic in estimating uses of cash. – Keep in mind you control the timing of when certain bills get paid. Consider accelerating payments to take advantage of discounts. Consider opportunities to reduce or eliminate costs wherever possible. Brady Ware Capital, LLC 10
THE CASH FLOW ANALYSIS ABC COMPANY, INC. MONTHLY CASH FLOW WORKSHEET January February March Beginning Cash Balance $ 10,000.00 $ 6,950.00 $ 1,900.00 Sources of Cash / Cash Inflow Cash sales to customers 5,000.00 3,500.00 3,000.00 Cash collections on customer accounts receivable 2,000.00 1,500.00 1,500.00 Cash borrowings on line of credit or proceeds from bank loans - 25,000.00 Cash contributions from owners or stockholders - Total Sources of Cash / Cash Inflows 7,000.00 5,000.00 29,500.00 Uses of Cash / Cash Outflows Cash Purchases Supplies 100.00 100.00 100.00 Gasoline 500.00 500.00 500.00 Other 250.00 250.00 250.00 Payments to Third Parties (Checks, Direct Deposit, ACH Transfers) Wages - excluding owner salaries 3,500.00 3,500.00 4,000.00 Tax Payments and Withholdings 500.00 500.00 500.00 Utilities and facility costs 350.00 350.00 350.00 Supplies and materials 250.00 250.00 250.00 Rents 500.00 500.00 500.00 Telephone and internet charges 150.00 150.00 150.00 Repairs and maintenance 100.00 100.00 100.00 Advertising 100.00 100.00 100.00 Other 250.00 250.00 500.00 Payments on Debt Obligations Payments on line of credit or bank notes (principal + interest) - - 650.00 Return to Owners / Stockholders Owner / stockholder salaries 3,000.00 3,000.00 3,000.00 Proprietor / Stockholder withdrawals and distributions 500.00 500.00 1,000.00 Total Uses of Cash / Cash Outflows 10,050.00 10,050.00 11,950.00 Ending Cash Balance $ 6,950.00 $ 1,900.00 $ 19,450.00 11
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