Know your cash needs now

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American Trucking Associations’ advanced seasonally adjusted Truck Tonnage Index decreased 0.4 percent to 157.0 in October, the group reported. This decrease followed a revised 0.3 percent increase in September. Compared to October 2003, the unadjusted index is down 2.1 percent, the first year-over-year decrease since November 2003. Year-to-date truck tonnage, compared to the same period in 2003, was up 6.0 percent. ATA attributed the October decline to a slight deceleration in economic growth and to the fact that October 2004 had two fewer business days than October 2003.

Freight Transportation Services Index increased 0.5 percent to 126.2 in September from the August level of 125.6, according to the Department of Transportation’s Bureau of Transportation Statistics. The increase follows a one-month decline in August. The September 2004 level of 126.2 is 6.4 percent higher than the September 2003 level of 118.7. The baseline year for the experimental index is 1996.

South Carolina Trucking Association plans to oppose a state plan to fund secondary road building and maintenance with a $15-per-axle annual fee on cars and trucks. Owners of heavy trucks would pay $90 more each year, the association says. SCTA recommends that the General Assembly instead should increase existing taxes.

RTS Credit Service has introduced a Credit Alert Program to notify member users when a transportation broker’s credit rating has been lowered, alerting haulers to possible risks with the broker’s ability to pay freight bills.

To prepare for the coming year – or any year – your financial team should help you answer three critical questions:

How much cash are you going to need?
When will you need it?
How are you going to get it?

Thanks to enhancements in software for forecasting cash flow and the increasing sophistication of many financial professionals, the answers to those difficult questions are within the grasp of most business owners – provided they are willing to make the investment.

Owners of serious growth companies know that it is possible to grow too quickly, outrunning available cash and loan resources. Bankers and investors monitor “sustainable growth” – the level of sales growth a company can sustain without serious deterioration in cash balances or without needing massive equity capital infusions.

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For example, an increase in sales of $1 million might add $200,000 to the bottom line in terms of book profits but generate no net increase in cash after you consider the impacts of higher accounts receivable and investments in equipment and driver recruitment and training. So working to “grow yourself some cash” actually can produce the opposite result.

But surprisingly few companies have a reliable cash forecasting system that helps them predict the profit-and-loss statement, balance sheet and cash flow statement – all on a rolling basis for 12 months – and compare forecasts with actual results. That’s especially surprising when you consider the disastrous costs of running out of cash. Consider that in the eyes of the bank’s loan committee, coming back with a request for more cash is far worse than asking for too much up front.

How can you forecast cash balances? First, you must choose between internal preparation and outsourcing. If your company has a controller and an adequate accounting department, those people should lead your cash forecasting functions. But if they are swamped with daily, weekly and monthly reporting and control chores, you would need to invest in additional people for their department so that more time can be opened up for these long-term tasks.

If this is your situation, consider outsourcing the setup of your cash forecasting system to a CPA firm. Once the system is working smoothly, your own staff should be able to take over. If you do choose to build forecasting internally, you can get some help from accounting software programs. Choose those planning tools carefully. Good forecasting is a much more sophisticated financial model than many people believe. Simple spreadsheet-based programs often cannot predict all three critical financials – the P&L, the balance sheet and a cash flow forecast. Don’t waste your time trying to create such a program. I have done that, and it takes far more time than you can devote to the project.

One program I have used is “Up Your Cash Flow” at this site, which goes beyond being a mere budgeting or forecasting tool and is useful for strategic analysis and targeted planning. For example, this program allows forecasts by specific customer, plus other tools that break down your business into manageable segments. This would be critical if you have five or 10 really large customers.

Another feature I like is “Trial Balance,” which allows you to begin with last year’s balance sheet and P&L as a starting point for this year’s forecast. Yet another is “One Hour Forecast” that allows a quick analysis after entering a few key variables.

Any software you use should give you plenty of horsepower to modify most of your dozens of variables quickly. And plan on obtaining any available training courses. As in any new process that has tremendous benefits, the investment of time and funds will have a return commensurate with the cost. Just ask anyone who’s run out of cash at the wrong time.

“Action Plan: Forecasting Cash Flow and Budgeting,” online checklist courtesy of at this site

“Long Term Cash Flow Projections,” online article courtesy of SBA Online Women’s Business Center at this site

“How to Better Manage Your Cash Flow,” online article courtesy of at this site