The CFO'S Perspective

Running out of cash is not only a sign of poor planning, but it's also one of the biggest reasons that businesses fail. Forecasting your company's cash flow can be tricky because of the many variables that determine how much cash you will need for operations versus the amount available.

As nonprofit costs continue to rise organizations that regularly operate with minimal or moderate budgets are finding that they are in a cash negative position. How they respond now will determine what the future holds for their missions, staff, and the people they serve.

Find out more about what you can do to increase cash flow to keep your organization’s programs and initiatives running as intended:

As fractional CFOs (Chief Operating Officers) we get a lot of questions about COGS (Cost of Goods Sold) and SG&A expenses from our clients. They want to know how to classify different types of expenses, which one to focus on when trying to control costs, how to think about them when evaluating business opportunities, and what kind of impact each can have on profitability. As such, their questions often span the two interconnected worlds of accounting and finance.

From an accounting perspective, categorizing expenses correctly helps to ensure regulatory compliance and aids in ongoing cash flow management. While from a finance perspective, understanding their impact on revenue growth allows for effective long-term financial management. For these reasons, having a firm handle on the difference between SG&A and COGS is a critical component to running any business.

If you’re wondering whether your company needs to switch to a rolling forecast, it’s important to look at why you’re asking. The simple act of questioning whether your current budgeting process is sufficient likely indicates that you have identified a shortcoming in your current budgeting process that provides an opportunity for improvement. Moving to a rolling forecast may offer benefits over your existing methodology, but it’s important to understand the pros and cons associated with using a rolling forecast and what to be aware of when considering switching budgeting methods.

Invoice factoring, also known as accounts receivable financing, improves cash flow by selling your company's outstanding invoices to a factoring company for a fee. As with any financial strategy, it's crucial to understand these risks and weigh them against the potential benefits. Invoice factoring can be a powerful tool for improving cash flow, but it needs to be used wisely as part of a well-considered overall financial strategy.

In this article, we review and answer the following questions:
(Each links to your question/answer of interest.)

1. Factors to consider when deciding whether to use invoice factoring?
2. What are the risks when using invoice factoring?
3. What is the average cost of invoice factoring?
4. What types of businesses use invoice factoring?
5. When should a company use factoring?
6. Do factoring companies check credit?
7. How do you get your company approved for factoring?
8. Why is factoring so expensive?
9. How do I get out of a factoring company agreement?
10. Do you need a CFO to get invoice factoring?

There is a misconception that business services companies do not need to prioritize cash flow management in the same way that retail businesses do because they do not have the same kind of inventory demands. However, cash flow planning is just as important for service providers as it is for retailers because cash is the lifeblood of both!

For-profit companies understand the importance of cash flow projections because they are inextricably tied to their goal of generating ongoing revenue. Nonprofits, on the other hand, are not typically as “cash flow savvy.” Some only do cash flow projections when required as a grant application stipulation, while others do not do them at all. And of the organizations doing cash flow forecasts regularly, many do not truly understand what they should be getting out of the process.

Managing consistent working capital provides the resources needed to achieve organizational objectives and execute on the company’s strategic vision. In this way, working capital ensures business continuity for manufacturers and acts as a determiner of success. When cash is managed properly, a manufacturer will not only have the resources needed to keep operations running on schedule but also generate the long-term capital needed for major expenses like equipment replacement and facilities upgrades.

However, in a manufacturing setting, working capital is typically harder to manage than other industries. Manufacturing has a number of oddities that complicate their working capital formula and make management more challenging. Furthermore, inventory risks, high operating costs, reliance on manual processes, and frequent payment delays can all put strain on their working capital. The result is a perfect storm of cash flow management difficulties for manufacturers.