Situation: A company is frequently short of cash at payroll time. It has good revenue and profitability, but timing of receipts can make it difficult to meet payroll. Are the CEO and CFO doing something wrong, and what changes should they look at to better manage cash flow needs? What are best ways to boost cash flow?

• All financing begins with your cash flow pattern! Your ability to manage cash flow is the foundation of credit worthiness. It is both a reflection of past performance and specific future performance expectations.
  • What can you do to optimize your situation?
    • First – put your own house in order!
    • Review your business model and the aspects of the business model that are causing cash flow challenges. Based on what you find, fine-tune your business model and its cash flow capacity. If receipts are the challenge, work with your customers to focus on timely payments.
    • Understand your financing needs in their full context. What short-term financing options are available? Will your bank offer you better terms on your line of credit to keep your business.
  • Stop, think and analyze before you act.
    • Framing:  View the problem in its full context!
    • Alternatives:  Consider all relevant choices!
    • Trade-offs:  Get more than you are giving up!
• It is important to fine tune your business model, not just in slack times when you have the time, but also in good times so that you are well-prepared for the next slack period.
• When times are flush, set aside funds to invest in analysis of your business model.
• Special thanks and in memory of Eric Helfert, PhD for his advice in this discussion.