3 reasons to sharpen your cash flow management
A solid understanding of cash flow management can be a cornerstone to guiding your small- or medium-size food or beverage manufacturing business through the many variables you face on a day-to-day basis.
When you understand your numbers inside and out, you can optimize them, which gives you a better chance of having a well-run business, experts say. Here are three more reasons to sharpen your cash flow management knowledge:
1. Cash flow is your road map
The cash flow of your food and beverage processing business can tell you where you were, where you are and where you will be as it relates to your company’s financial condition.
“Accurate cash flow planning and analysis is a lens into the health of your business,” says Matt MacDonald, national leader of food and beverage processing at MNP. “If you don’t understand your own numbers, it’s difficult to chart a course for where you ’re going, because you don't know where you are.”
A common occurrence is overdue payment from the next step in the supply chain. While late payments may be commonplace, it’s frustrating for food and beverage manufacturers – and has a financial implication, which can be tracked with cash flow management.
“How do you really count the cost of what that means to you?” MacDonald asks. “With a cash flow statement, you can move that payment around within your analysis and understand your financial cost by them paying you at Day 90 versus Day 60. Without a tool to use, your insights are anecdotal and likely costing you money.”
2. Time on finances is an excellent investment
As processors, there is a deep passion for the food or beverage you create, but you may not consider yourself to be a numbers person. As such, you focus on what you know and love and may not spend enough time in other areas, including fully understanding and managing finances. This can be a problem, explains Sean Bradley, director of finance with Food Island Partnership, which helps small- and medium- businesses in Prince Edward Island launch and grow their food manufacturing businesses.
He says owners are pulled in many different directions with endless priorities, such as production, sales and marketing, human resources, supply chain and distribution.
"Unless you are financially inclined, it is easy to let dealing with your finances slide down that list of priorities,” Bradley points out. “Then all of a sudden, you realize you are cash-strapped, which can negatively impact all facets of the business.”
Spending time with your numbers is always an investment.
He encourages manufacturers to break finances up into manageable chunks and consistently allot time toward understanding your business’ finances. It may seem daunting or stressful but spending time with your numbers is always an investment that pays off. If you’re unsure where to start, ask for help.
“Don’t shy away from it,” Bradley says. “Take ownership of your finances because it’s the lifeblood of your business. Nine times out of 10, dealing with your finances actually relieves stress because knowledge is power. When you fully understand your finances, you are equipped with the knowledge you need to make good decisions.”
3. Quantify goals with the right data
Since we live in a data-driven world, it’s easy to get overwhelmed with numbers. However, it’s important to filter your financial data for cash flow management so they can be used to reach your business goals.
“It’s important that the data and information you’re trying to measure aligns with the objectives that you’re trying to achieve,” MacDonald says.
Have a clear focus, he says, otherwise, you’ll bring in too much data and be overwhelmed. At the same time, if you bring in too little data, you miss out on key metrics that may be beneficial.
“Measuring results against the prior time periods and your projections is critical,” he says.
To do this, there are many tools, but MacDonald encourages business owners and managers to utilize a monthly dashboard with key performance indicators tailored to the business. In addition, a 13-week rolling cash flow statement is helpful to understand the proper context of cash flows and assist in operational decision making.
“If your 13-week rolling cash flow shows business is trending down, there is time to course correct. If it trends upward, you can double down or continue on as normal,” MacDonald says. “The numbers give you the roadmap forward out of any given situation.”
Cash flow statements do a lot for small and medium food and beverage processors. With effective use, you always know the financial health of the business, which can help relieve stress. This enables you to focus on future planning and allows you to quantify what is truly important to your business.
Article by: Trevor Bacque