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Growing Pains: Cash Flow Management

2009/5/9 14:28:00 42048

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Cash flow management plays a very important role in the development of small and medium-sized enterprises. A good cash flow management can ensure that you can achieve a great deal of benefits in operation. Otherwise, it will seriously restrict the survival and development of your business.

For small and medium-sized enterprises, the following situations may lead to cash flow crisis, which should attract special attention:

1, the period of rapid growth of business;

2. When the potential payment cycle comes,

3, DSO cycle is too long, more than 35 days;

4, inventory is too large, especially when the stock index is greater than 2.

The meaning of cash flow

Cash flow is inevitable in business operation. The real meaning of cash flow is to achieve the healthy operation of enterprise funds through investment behavior, so as to maximize profits.

For example, the cost of raw materials for an enterprise is 1 million yuan, the cost of employee wages is 100 thousand yuan, and the profit of sales is 200 thousand yuan. If the receivables can be paid within 10 days, and the payment should be paid 60 days later, then it is equivalent to a company earning 1 million 300 thousand yuan in a bank for 50 days. If this 1 million 300 thousand is not placed in the bank and continues to operate, we can see that within the 60 day payment cycle, the enterprise has already completed the business of 5 single, enough to get more than 1 million yuan profit, and the cost is the same as that in a single unit.

It can be said that when the payment cycle and payment date are constant, the above mode of operation will always exist. In fact, it is a profitable business mode.

If an enterprise assumes that its business development is normal, the wages of the employees will be paid only after one month, and the payment cycle is much longer than that of the receivables cycle. In theory, the more the number of employees employed, the greater the number of interest free loans. The more businesses, the more interest free loans from suppliers, so the faster the development of enterprises will be.

Cash flow risk

The management of cash flow includes three parts: inventory, receivables and payables.

It can be seen from the above commentary that payment and refund cycle are of unusual value to enterprises. Therefore, managing payments and payments well is an effective guarantee for the rapid development of enterprises.

First of all, business growth will never be balanced. If business models are not designed well, resulting in overstaffing or lack of anti risk capability, and if the imagined business is not done, the business will face risks.

Secondly, the rapid growth of business has weakened the ability of enterprises to control the payment cycle. In order to get more business, many enterprises often adopt lagging payment period, and drag on the payment period, resulting in lower credibility, and ultimately will be punished.

Third, some potential payment cycles, such as rent, taxes, wages, etc., are often not easily reflected from the financial statements. Ignoring the existence of these schedules will have a huge impact on the cash flow of enterprises, and also bring problems to business management.

Cash flow management tells SMEs: do not pay too much attention to profit margins, cash flow rate is often more valuable than profit margins, but the cash flow must be strengthened management. Many enterprises eventually have to go bankrupt because of cash flow management problems, including the large enterprises such as Asia.

DSO theory

The academic meaning of DSO (Days Sales Outstanding) refers to the average time that an enterprise turns its account into cash.

For a general enterprise, especially a two tier agent, DSO means "the average return period of the product I sell".

The formula is: receivables DSO= total receivables / average daily sales.

From this formula, the larger the receivable DSO, the higher the odds of your bad debts. It is not that you are given loans, but that you are doing business with others on interest free loans.

For the two generation of the country, when the receivable DSO is less than or equal to 30 days, your financial situation is good, while the DSO value of the general company is usually 35 days.

The value of DSO theory is that we can have a very clear understanding of enterprise capital flow management. When receivables DSO is less than DSO payable, your cash flow is benign. The greater the difference between them, the faster the growth of enterprises.

The receivable DSO provides a warning value for you. If it is greater than 35, your business is not suitable for blind expansion, because the more it expands, the greater the risk will be, and the more serious the cash flow crisis will be.

The specific guidance of DSO theory is that:

1, for those who seriously affect your receivable DSO value, we should take appropriate solutions, and when necessary, we should firmly shield them.

2, the management of DSO should be as strict as capital management, and establish a sound system to stimulate the rational operation of capital flow, for example, it can be linked to the benefits of specific business people.

3, enterprises should constantly expand their business scope. Generally speaking, new customers are paying in cash. The more new customers a business contacts, the more normal their cash flow will be.

4, improving the efficiency of cash flow operation is the top priority of the two generation enterprises. The calculation of receivables DSO for 30 days is basically parallel to the payable DSO. The efficiency of cash flow is not significant, and enterprises are not easy to get growth.

Now many enterprises are concerned about financing problems, such as bank loans, but DSO theory tells us that if enterprises can not solve their internal cash flow management problems well, how much of the funds are also given to others, which will not play a role in the growth of enterprises themselves.

SMEs often have a complex, that is, the business volume and profit margins have a very bigoted mentality. This small business mentality is actually the most fundamental factor that prevents them from becoming bigger. There should be a "blacklist" inside an enterprise. Through this list, you can see which companies can never do business with them, while some other enterprises may not have high profits, but it is the key to your real growth.

For those enterprises with limited scale, poor reputation, and relying on your capital to do business, then you can only deal with it. For such an enterprise, you must be careful, especially pay attention to calculating its consistent DSO composition.

Stock index theory

There is also a stock problem between the accounts payable and receivables. The less inventory, of course, the better. Inventory will not only take up your resources, but it will depreciate at any time, so inventory is a factor to increase enterprise risk.

But in real life, inventory is sometimes necessary. How can we reduce the risk of inventory?

This depends on the theory of stock index.

The formula is: inventory week = existing stock /

The average sales volume in the past 4 weeks.

When the stock week is greater than 2, it means that your company's inventory is facing problems. If the figure is greater than 5, the problem will become quite serious. If it is not solved as soon as possible, the development of enterprises will be greatly affected.

Through this formula, we can see that a channel trader should turn around once every half month, which means that 24 times a year.

Benign inventory management can effectively promote the efficiency of capital flow, and it is a way to speed up the flow of capital.

Here is an example of actual sales:

Haitao, Yin Wei and center are 3 systems integrators. They are in the same building.

On one occasion, they won the bid at the same time, and 3 companies needed to integrate the following products in the integration process: desktop (arrival time was 3 days), server (arrival time 5 days), enterprise network products (arrival time 8 days), platform software (arrival time 11 days).

At the same time, Haitao contacted the suppliers at the above products. The result was 11 days, but the desktop has been put in its warehouse for 8 days, and the server has been put for 6 days.

Yin Wei first ordered the goods of the platform software, then ordered the network product 3 days later, and then ordered the server 6 days later. The time of the product was 11 days, but all products arrived at the same time without occupying its stock.

The center company directly found a good agent with good cooperation. The general agent sent all the products together to the center company directly, and the time spent was 8 days, which did not occupy the stock of the center company.

From this case, we can see that the center company is smarter. It not only maximizes the occupation of its own resources, but also effectively improves the delivery speed, which is not only valuable for improving the receivable DSO, but also gives customers a positive impression on the service, and has unusual significance for winning the future list.

Current conclusions

1, improving the efficiency of cash flow is the key to the growth of small and medium-sized enterprises. To grasp this point, we must have a good grasp of DSO theory and stock index theory, which will bring security and efficiency to your enterprises.

2, in order to improve the efficiency of cash flow, enterprises must abandon the persistence of profit margins and business volume, change the traditional "guerrilla" style, and incorporate enterprise cash flow management into the norm.

3, enterprises must maintain high vigilance on cash flow operation. This is the fundamental way to safeguard their long-term stability and stability.

Question 1: what principles should be used to release accounts?

Xiao Wang has 2 new customers on hand, one is a newly opened high-end restaurant, the other is a supermarket chain run by the local richest.

The owner of the restaurant found Xiao Wang himself. He said, "please allow us to pay in 1 months. You see, I spent about 2000000 yuan on decoration. I sold one yuan for a fish, and 50 percent off for dinner." how can I default on your loan? "

"Xiao Wang believed each other. As for the supermarket, Xiao Wang was more relieved because it was the first rich industry. But 1 months later, 2 months later, Xiao Wang's money was still not received.

In this case, the price of the former product is so low, and the cost is so high, of course, it will not pay Wang Wang's account immediately.

In the process of capital accumulation, the first richest person in the local area may be relied on to settle accounts. Besides, the supermarket itself is also strict in cash flow management, and accounts are easy to happen.

Rich people do not necessarily pay. Xiao Wang did not specifically analyze the details of the two clients.

The most scientific way is to communicate.