Cash is the lifeblood of any business. Without cash a business cannot survive. Two critical services performed by the The Part Time CFO are:
1. Solving Cash Flow Problems
2. Forecasting Cash Flow
Cash Flow Problems are caused by:
- Too much inventory.
- Too much salary to owner or too many withdrawals by owner.
- Doing business with customers who are slow paying or who do not pay at all.
- Overhead too high.
- Too much debt.
- Under capitalization from the beginning
- Unexpected casualty or occurrence
- Employee theft or embezzlement
- Excessive purchases of fixed assets and capitalized costs.
- Operating losses
- Paying bills too quickly
- Selling prices too low / Not knowing what your product or service costs.
Take a look at this list. Which area do you think is your biggest cash burner? Even if you do not have a cash flow problem you should assess your risks in all of these areas. If you do have a cash flow problem you should assess which areas are burning the most cash and work to address it.
Business Forecasting and forecasting Cash Flow is another important CFO Service. Business owners should know in advance if their business is going to require additional cash so they have time to obtain it or better yet knowing what cash needs are in the future will give the business owner the time to manage the business more effectively potentially circumventing the need for the additional cash. A CFO can provide you with the forecast and the best strategy to go forward.
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