When a company is in crisis there is often a management lack of awareness of its true financial position.
Not being able to see the wood for the trees occurs even in the largest of companies and is often due to the failure of a Financial Director to display and communicate financial information in a way that is fully understood by a Managing Director or CEO.
Companies that know where they are know where they are going and ones that do not are often lost.
Having your end of year accounts up to date is not the priority when you are in a crisis. Your cash position today and what is likely to happen in future weeks is the most important issue.
Awareness of this is created through the accurate construction and running of either a 9 or a 13 week rolling cashflow.
Having a cashflow allows you to project into the future and when things are hand to mouth it is critically important that strict controls are placed on the management of the cashflow.
This cashflow can either be produced by an in-house finance team or by an external company engaged in the Turnaround process. Either way it is accuracy and speed that is needed if you want to save your company.
You are likely to find that your future cash flow projections will be very accurate over the first 4 weeks and then gradually become less accurate. The preference for a 13-week cashflow over a 9 week cashflow will give you the ability to see quarterly costs which might sometimes be forgotten.
When a cashflow has been produced it will show clearly when your company will run out of cash. With this awareness your next focus should shift towards how you control cash collection.
Running a cash collection system on a hand to mouth basis is not good enough. You need to create awareness of the actual cash position in a company and active planning is the best way to do this.
- John Whiteman
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