A friend of mine that runs a mid-sized Oil & Gas services company once shared this little nugget of advice with me, “I tell you what, cash flow is your friend and your enemy. It’s the angry gorilla at the door one day, and a warm spring sun the next day. If you don’t have a good handle on your cash flow in business, you’re in deep trouble.”
So true isn’t it? But what does it really mean? And what can you do to get a good handle on your cash flow?
There’s a lot of talk about cash flow out there, but put simply, it’s the term used to define the highs and lows of available money as it flows in and out of your business or project (Wikipedia has a good description of cash flow). The big challenge with cash flow for most businesses however; is knowing when it’s going to be high and when it’s going to be low. It’s rare that there is a uniform, predictable ebb and flow of cash in any business, so having good information and tools to be able to calculate when those winters and summers are likely going to be, is crucial.
This is especially true of project-based organizations; particularly those that have to invest heavily in a project before it begins to pay off. Investing in a project could mean anything from procurement of equipment or materials to just covering payroll for a few months until you receive your first payments on invoices. It could take months into a project before breaking even, and if you have several projects on the go at the same time, having a good read on how & when the money coming in from one project can help pay for the money going out on another project, can make or break your cash position.
When bidding on projects, there is a tremendous amount of uncertainty that project managers and business owners struggle with if they’re not 100% confident they can actually afford to execute on that project. This is such a common problem, that there has been an explosion of private debt financing companies that have emerged to offer a cushion to these project-businesses while they weather those uncertain days. Securing debt financing can obviously be a saviour for many businesses, but when taking advantage of a service like that, it’s critical for a business to have a solid handle on their current and historical cash flow so that they can: a) get a favorable rate and b) they can be sure it can be paid back while still being profitable. An even bigger question is: maybe they didn’t need financing in the first place. Many businesses get stuck in the rut of becoming too reliant on debt because they’re just not sure if they can cover the costs. And they’re not sure because they don’t have a good handle on their cash flow.
As a project cost management software solution, 4castplus offers 3-tiered reporting on project cash-flow. First, it provides good reporting and detailed information on where your projects are at currently (in real-time). Second, 4castplus also provides robust reporting on historical cash flow and performance of projects. Third – and this is the truly critical part – 4castplus provides the capability to forecast your project cash flow; giving you the ability to anticipate where your cash position is going to be at certain points in the future.
That ability to anticipate – to foresee when your highs and lows are going to appear, along with how high and how low they’re going to be - is one of the most vital financial tools a company could possess. This is of course coupled with the solid financial metrics on where you’re at now, and where you’ve been. These 3-tiers of cash flow reporting provide both you, and anyone who’s evaluating you, a clear picture of a well-run organization.
It's about simple management of your money.