CASH IS KING HOW TO BEST MANAGE YOUR COMPANY’S CASH AND INVOICES
DR. JÜRGEN WOLFF, FOUNDER OF A352 SARL Luxembourg, November 2020 – “Cash is King”
INTRODUCTION_ The Book
The Movie
CV Jürgen Wolff
https://www.youtube.com/watch?v=Lnrb8HnQvfU
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AGENDA_ 1. Cash is King 2. Know your Cash 3. Manage your Cash 1. 2. 3.
Cash Conversion Cycle Example Actions and Best Practices
4. Forecast your Cash 5. The Solution Luxembourg, November 2020 – “Cash is King”
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1. CASH IS KING_ Quotes… “Despite the fact that cash is the lifeblood of a business – the fuel that keeps the engine running – most business owners don’t truly have a handle on their cash flow,” Philip Campbell, author of Never Run Out of Cash 2 nd most frequent reason why startups fail is a lack of cash – CB Insights “Why startups fail” 2020 “Poor cash-flow management is causing more business failures today than ever before.”
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2. KNOW YOUR CASH_1/2 The Key Concept
Things to think about
It’s crucial to always be aware of the following 4 metrics:
What actions can you take to keep Burn Rate low and how to increase the Runway?
Cash Reserves: accumulated bank balances + highly liquid assets Gross Burn Rate: total monthly spending (cash outflow) Net Burn Rate: Gross Burn Rate – monthly Cash inflow (revenue) Runway: Cash Reserves / Net Burn Rate
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Keep your Gross Burn Rate low and keep a clear budget Manage your Cash! How?
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2. KNOW YOUR CASH_2/2 The Question
Why are these metrics crucial?
“How much time have we left until you run out of cash?”
1. Runway shows “time until
Example:
2. Actual Net Burn Rate vs.
Cash Reserves: rest of seed funding: €100k Gross Burn Rate: €2k rent + €15k salaries +€4k other = €21k Net Burn Rate: €21k - €1k revenues = €20k Runway = Cash Reserves / Burn Rate = €100k / €20k = 5 months
3. Investors want clear justification
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insolvency”
Planned Net Burn Rate reflects how well you run your company of Burn Rate deviations
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3. MANAGE YOUR CASH_1/3 The Cash Conversion Cycle (CCC) How fast can you convert investments into cash flow?
Cash Conversion Cycle = Sales cycle + Days Sales outstanding – Days Payables Outstanding Component
Sales cycle
Days Sales Days Payables Cash Conversion Cycle outstanding (DSO) outstanding (DPO) (CCC)
Definition
Days from first contact to sale
Days from sale Days from Days to convert until you are paid receiving bills until investment into cash you pay flow
Example
90 days
30 days
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30 days
90 days Luxembourg, 18.11.2020
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3. MANAGE YOUR CASH_2/3 Why is the CCC relevant? An Example Company
Sales cycle
DSO
DPO
CCC
A
60 days
30
30 days
60 days
B
120 days
90 days
30 days
240 days
1.
A shorter CCC means faster growth or longer runway with same capital
2.
The faster investment recouped, the sooner reinvest into leads or sales development E.g. Company A can buy €1 leads every 60 days, Company B needs 4x time
3.
A longer CCC means a higher funding need that leads to higher dilution of founders
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3. MANAGE YOUR CASH_3/3 How to improve? Actions and Best Practices Speed up your sales cycle
Once you contacted a lead, keep at it to close the deal!
Shorten your DSO
“Invoicing a customer creates revenue. Collecting the money is what creates cash.” Shorten your terms of credit and collect payments promptly Create a dunning process or use factoring to avoid late or no payments
Extend your DPO
Pay invoices at due date, or arrange cash discounts Negotiate payment terms extension with suppliers
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4. HOW TO FORECAST_ See the cash coming in the future Calculating your Burn Rate is not enough Build a rolling Cash Outlook for at least 4 weeks, particularly important
at the end of your Runway! Cash Balance + Accounts Receivables – Accounts Payables +/Recurring payments Model Scenarios of long-term Cash Flows (matching the Business plan) Define impact of the CCC on your remaining lifetime
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5. HOW TO MANAGE_ The Problem 1. It’s time consuming! Information is distributed and not readily available
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2. It’s (probably) not your cup of tea
Ways to solve it 3. It keeps you from focusing on your core business, like improving your sales process
Make or Buy: Do it by hand, if this is
not too much Create your own excel incl. macros, etc. Ask your fiduciary for
help Find a digital assistant, something where big parts of the job are preset, and usage is intuitive
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_WHY IS IT COMPLEX_ Financial information is distributed Operating System
Business Plan
Data exchange is not real time Real time cash/liquidity information is not available in this system. The routine when systems synchronize each other varies. To get real time information about the current status of the cash situation and its development is hard to get.
Work books
Accounting System
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Information silos – information is distributed in many systems Each of the different silos contains information about the current and future financial situation of the company. Many different communication standards are used (.csv; xml, other).
Bank
All constrains are usually fixed with excel Excel seems to be the best practice, but old and merged spreadsheets based in various import file styles do not seem to be sustainable. 12
THE SOLUTION_ The Financial Navigator for Small/Micro Companies Simplify cash management and payments One platform to manage and execute all payments – independently of the bank that the customer uses. Reduce risk and safe costs Real time cash/liquidity information and a reliable outlook, including accounts payables and receivables. Create new opportunities and provide knowledge Open-up opportunities for alternative suppliers, e.g. accounting systems, financial service providers. Educate customers on financial topics and give recommendation supported by Artificial Intelligence.
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Q&A
Ask me anything! Like us in the net – we need your support! Follow us
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Beta Phase Get the solution for free at a352.io
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CONTACT_
Office Address
Contact person
Beta Phase
Inside The LHoFT (Luxembourg House of FinTech) 9 Rue du Laboratoire, L -1911 Luxembourg
Dr. Jürgen Wolff M. +49 171 535 5884 Juergen.wolff@a352.io
Get the solution for free at a352.io
T. +352 28 81 02 01 www.a352.io info@a352.io
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Benedikt Chorus M. +49 151 201 60960 Benedikt.chorus@a352.io
Follow us
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