Inflation Busters (CONT’D FROM PAGE 1 )
curate, will the expected timeframe be met?” What deter- mines cash on hand is not sales but collections, and his- tory shows that during inflationary times customers start paying slower as a result of their own cash squeezes. Planning must reflect the reality of cashflow uncertain- ty. “Growing accounts receivable can put serious strain on smaller businesses that may not have the cash reserves to absorb delays in receipts,” said Beaver. “For most compa- nies cashflow forecasts are less than 75 percent accurate.” One approach to anticipating likely variables is to look at historical performance. What percentage of receivables is usually collected during slower seasons? That figure can be applied to open receivables to help estimate the likely Historic data, of course, may provide a less than reliable foundation for future forecasts. Whatever the estimates for what lies ahead, businesses can obviate cash squeezes by accelerating accounts receivable and stretching accounts payable. For the former, experts advise running regular ag- ing reports. How much do customers owe in increments of two weeks, 30 days and 60 Days? Any growth in the numbers over time might indicate a steady deterioration of cashflow. Keeping in close touch with customers can also help accelerate receipts by providing opportunities to request timely payments and helping spot nascent issues that may pace of receipts. Faster Receipts
wage spiral resulting from the pandemic’s softening effect on the labor supply. Forecasting Cashflow Of all the steps businesses can take to mitigate the bot- tom-line effects of inflation, the most important is better management of cashflow. Inflation tends to accelerate the drain of money from company coffers, and throttle the flow that comes in. If left unaddressed, these battling trends can gut profits and threaten business survival. Experts advise looking at the coming months with an eye toward estimating what will happen to cash balances. “Proactively managing cashflow is critical right now,” said Lisa Anderson, president of LMA Consulting Group, Clare- mont, CA ( lma-consultinggroup.com ). This can be done by running periodic forecasts. “What I would recommend is looking at your demand side and asking, ‘What are we really going to need here?’ And then looking at your sup- ply side and asking, ‘What will I have to make?’ And then determining what the answers mean for cashflow. If it’s go- ing to be negative, you better borrow some money.” Such analysis, of course, involves estimates of future revenues—a practice tainted by uncertainty. “Having a sales forecast is great, but that doesn’t mean you will col- lect all the money you think you will,” said Scott Beaver, Senior Product Marketing Manager at Oracle NetSuite “And even if your sales forecast is a hundred percent ac-
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