With the continuous tightening of the credit markets, calculating cash flow is in the spot light at almost every organization. Read further about how dashboards could help your organization. The first step in getting Cash Flow under control is to educate your organization on the importance of Cash Flow and how it affects the organization. If you have an issue with Cash Flow, you need to closely monitor the variables that affect it. The variables in an increase for Cash Flow include:
- Accounts Receivable – Decrease Days Sales Outstanding (DSO) – How long it takes to collect payment from customers
- Increase Accounts Payable terms – How long do you have to pay your vendors
- Decrease Expenses
- Decrease Cost of Goods
- Increase Prices
- Reduce inventory- turning it back to cash
Although there are benefits from decreased DSO, and increasing the terms by which you pay your vendors, this is probably not a long term fix to Cash Flow. If you have a Cash Flow problem and are not in a rapid growth pattern, the problem is probably related to Profitability. Profitability is simple, if you sell your good or services for less than your cost + expenses you will lose money and have no cash. Additionally, if you have heavily invested in inventory that is not selling, you will have cash tied up in inventory. The best way to solve the inventory issue to make sure you have the correct inventory mix.
So how do we monitor the variables that affect our cash flow including profitability and inventory mix?
Dashboards is a means of delivering reliable information in a useable format to the business, allowing better decision making. Many organizations think of sales data when they think about a dashboard but a dashboard can easily provide information on DSO, Accounts Payable, Expenses, Cost of Goods, Inventory Mix, Inventory Turn and ultimately your cash position. But be careful! Many organizations deliver what they call dashboards that are only sexy actual reports. To be a full functioning dashboard, you need to regularly forecast your cash position. This requires you to link your forecast information into your dashboard. By using the dashboard to view cash forecasts, you not only see your current cash position but plan for the inevitable peaks and valleys of cash demands from your organization. A true dashboard should provide drill paths to more information so the business can take action if issues arise. To learn more about how you can use Dashboards to help cash flow, please call us at 813-254-2040 or email at Coaching@LodestarSolutions.com.