Joe Knight on planning for cashflow

  • Understand Wall Street’s focus on free cashflow.

  • Utilize tools for planning around payables and receivables cycles.

  • Manage payment terms changes to impact profitability.

  • Diversified access to working capital is critical.
  • Mon Jun 28 07:42:00 EDT 2021
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    In a recent Small Business Edge podcast, Brian Moran interviewed Joe Knight, co-owner and Senior Consultant at the Business Literacy Institute and co-author of the renowned Financial Intelligence series published by Harvard Business Review. They discussed numerous topics impacting today’s economy. Check out some highlights:

    Importance of free cashflow. Having a healthy income statement isn’t enough anymore. It can’t tell you if you are going to be able to make payroll next month. Wall Street’s focus has shifted from looking at just EBITDA and revenue growth to cashflow. The challenge in today’s economy is to project cashflow out for at least 3 months and have access to other sources of working capital for those times when business fluctuations cause an extended cashflow imbalance. Hear what Joe and Brian have to say [10:01 mins].

    Adjusting to changes in payment terms. When large buyers change their payment terms from 60 to 120 days to improve their cash situation, suppliers are often left stranded, scrambling to off-set that impact on their own cash availability. Solutions to this come with a cost. Balancing cashflow needs and profitability often requires a mix of solutions; increases in pricing,  leveraging capital assets, extending payment terms or finding new sources of working capital. Hear what Joe and Brian have to say [12:23 mins].

    Importance of multiple financial partners. A small to mid-sized business’s access to cash is the biggest back-stop to going out of business. Projecting cashflow out one to two quarters in advance and maintaining relationships with more than one bank can create an important buffer in any environment. Working capital assets, receivables and the availability of credit can help you weather the financial challenges that occur in every industry, and even those that impact our overall economic environment. Hear what Joe and Brian have to say [15:22 mins].