Who needs to see your cash flow analysis?

What is a cash flow analysis, who should see it and why? The answer could be illustrated in an all-too-familiar scenario.

Picture this: You’re driving along in your car and stop at a traffic light. A beggar appears at your window, asking for some change. You check your wallet and your ashtray. No cash. You tell the man you’re sorry, but you’ve got nothing on you. He seems unconvinced. He’s sized up your car and your appearance, and it’s obvious he thinks you’ve got some disposable income. He presses you for “just R1!” You assure him that you really have no money to give him. This back-and-forth goes on until the traffic light (thankfully) goes green and you drive off. Both of you are left frustrated. You feel like your integrity has been second-guessed by the man you encountered. And he’s sure you could afford to give him the R1 you denied him.

Sound familiar?

The crux of the matter is that you’re both right. You could afford to give him R1. The problem is that you don’t have the cash on you right now. To appease his disgruntlement, the beggar would need to have a look at your cash flow analysis.

This is the reason companies conduct cash flow analysis, and the reason it needs to be shared with key individuals in the business. Your aim is to stop similar misunderstandings, empty undertakings being made out of ignorance, and possible regrets.

What is cash flow analysis?

Put very simply, your company’s cash flow analysis is a summation of the movement of money in and out of your business. Every business needs an appropriate amount of cash flow, not only to ensure the smooth running of day-to-day activities, but in order to attract new loans. Bankers will look at your company’s cash flow analysis in order to see if you can afford to service the proposed credit.

According to the authors of Managing Small Business: “revenue growth and profits are fine, but only historical cash flows can demonstrate the ability to collect accounts receivable and properly manage inventory and accounts payable.

“Cash is not only king, but during the last recession, it was said to be the emperor of the universe!”

Who should see your cash flow analysis, and why? 

So external bankers will at some point see your cash flow analysis. But who within the business should be privy to these documents?

Many are divided on this point. Some feel that too much transparency around cash flow could spur internal politics and create expectations among employees. For example, if your sales team knows that the company has seen a large influx of cash, aren’t they more likely to expect a greater portion of commission?

It’s a valid concern. If employees don’t realize that this cash is merely inventory and has an already-determined destination, knowledge like this could create spurious expectations.

It makes sense to be selective about who sees the cash flow analysis, but it is equally important to ensure that the right people in the business are frequently kept up to date. A failure to do so could result in, at best, a business-wide occurrence of the beggar example above, or at worst, a mini financial bubble like the one that preceded the US crisis.

But who are these people?

In short, they’re the company’s decision-makers. Anyone who makes decisions that could affect the cash flow of the business should be seeing its cash flow analysis.

• Top management: This seems like a no-brainer, but it can be a discipline that gets overlooked. Your CEO, CFO and COO or equivalent – no matter how big your company is – should have a meaningful look into the company’s cash flow analysis every time it is generated (usually monthly or quarterly). Your financial expert should be on-hand to explain any technicalities or jargon. 
• Operations managers: If they’re managing any form of operations in the business – purchasing inventory, paying salaries, paying for services, and so forth, they need to know how many ‘rands are in the ashtray’ before they sign off. This should stop potentially avoidable difficulties, like your floor manager buying new stock a day before bonuses are due to be paid.
• Project managers: Project managers are often highly convinced about the importance of their mandate. Before they get too carried away with expenses, it’s helpful for them to understand how they fit into the overall cash flow perspective.

A good financial manager should ensure that your cash flow analysis is seen by the right contact points in the business. If this is being carried out effectively, costs should be optimized and cash flow crises should be averted. If you are looking for someone who can carry this out for your business, The Finance Team can help connect you to a skilled finance professional who will not only develop your timely, accurate cash flow analysis, but will ensure that it’s seen and discussed by the right people. That way you can keep your ‘traffic light’ incidences on the road and out of the boardroom.

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