Managing Cash Flow: An Operational Focus

361 Pages·2003·1.44 MB·English

Managing Cash Flow
An Operational Focus
Rob Reider
Peter B. Heyler
John Wiley & Sons, Inc.
This book is printed on acid-free paper.
Copyright © 2003 by Rob Reider and Peter B. Heyler. All rights reserved.
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Library of Congress Cataloging-in-Publication Data:
Reider, Rob, 1940–
Managing cash flow / by Rob Reider, Peter B. Heyler.
p. cm.
ISBN 0–471–22809–5 (acid free)
1. Cash management. I. Heyler, Peter B. II. Title.
HG4028.C45 R453 2003
658.15'244 – dc21
2002012147
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
Contents
About the Authors v
Acknowledgments viii
Introduction 1
Chapter 1: Understanding Cash Management 9
Cash Flow Basics 12
History, The Fed, and Float 21
Bank Issues and Concerns 28
Conclusion 33
Chapter 2: Managing Cash Flow—Receipts and Disbursements 35
Using the Balance Sheet 36
Cash Receipts 39
Cash Disbursements 58
Conclusion 67
Chapter 3: Planning and Budgeting 69
Relationship between Planning and Budgeting 71
Strategies for Competitive Advantage 74
Strategic Planning Process 76
Short-Term Planning 81
Conclusion 94
Chapter 4: Analyzing the Sales Function 95
Cash Management Study 95
Purpose of the Sales Function 96
Conclusion 122
Chapter 5: Cost Reduction Analysis Procedures 123
Benchmarking Strategies 124
Activity Based Costing Principles 152
Conclusion 174
Chapter 6: Analyzing Non-Value-Added Functions 176
Looking at the Accounting Function 177
Choosing What to Analyze 179
Identifying Goals and Basic Business Principles 182
Prioritizing Activities 184
iii
iv Managing Cash Flow
Financial Reporting 185
Developing the Cash Management Analysis Survey Form 188
Compiling the Data 188
Analyzing the Data 192
Organizational Issues 198
Budget Analysis 200
Analysis of Functional Costs 202
Analysis of Accounting Operations 206
Activity Based Costing Applications 211
Developing Recommendations 213
Specific Recommendations 214
Organization Recommendations 233
Other Areas for Review 235
Conclusion 237
Chapter 7: Investing, Financing, and Borrowing 239
Investing Excess Cash 239
Financing Sources for the Business 250
Borrowing for Cash Shortfalls 251
Conclusion 262
Chapter 8: Planning Cash Flow 263
Cash Flow Planning 263
Managing Cash Balances 276
Cash Planning Approaches 279
Conclusion 282
Chapter 9: Controlling and Analyzing Cash Flow 285
Brief Look at FASB 95 285
Cash Flow Projections—Methodology 287
Cash Flow Reporting and Controls 293
Interpretation and Analysis of Cash Flow 300
Conclusion 322
Afterword 323
Appendix A—Cash Study: Managing Cash Flow 325
Appendix B—Cash Conservation Checklist 341
Index 347
ABOUT THE AUTHORS
Rob Reider, CPA, MBA, PhD, is the president of Reider Associates, a management
and organizational consulting firm located in Santa Fe, New Mexico, which he
founded in 1976. Prior to starting Reider Associates, he was a manager in the
Management Consulting Department of Peat, Marwick in Philadelphia. His areas
of expertise encompass planning and budget systems, managerial and adminis-
trative systems, computer processing, financial and accounting procedures, orga-
nizational behavior and theory, management advisory services, large and small
business consulting, management information and control techniques, and man-
agement training and staff development.
Rob has been a consultant to numerous large, medium, and small business-
es of all types in the aforementioned areas (in both the private and public sectors).
In addition, he has conducted many and varied operational reviews and bench-
marking studies and has trained both internal staff and external consultants in
these techniques.
He is the course author and nationally sought after discussion leader and
presenter for more than 20 different seminars that are conducted nationally for
various organizations and associations. He has conducted more than 1,000 such
seminars throughout the country and has received the AICPA Outstanding
Discussion Leader of the Year award.
Considered a national expert in the areas of operational reviews and bench-
marking strategies, Rob provides specific consultation in the areas of general
business management, development of internal and external consulting practices,
organizational and management systems, and the development and conducting of
continuing professional education (CPE) and other training programs.
Rob is the course author of nine Reider Associates self study courses mar-
keted nationally. He is also the author of the following books published by John
Wiley & Sons, Inc.
• The Complete Guide to Operational Auditing
• Operational Review: Maximum Results at Efficient Costs
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vi Managing Cash Flow
• Benchmarking Strategies: ATool for Profit Improvement
• Improving the Economy, Efficiency, and Effectiveness of Not-for-Profits
Rob has also been a presenter at numerous professional meetings and con-
ferences around the country and has published articles in professional journals.
He has been a frequent commentator on the educational video programs
produced by Primemedia Workplace Learning such as The CPA Report, The
Governmental Update, and the Accounting and Financial Managers Network
Rob has earned the degree of Bachelor of Science (B.S.) in Business
Administration and Master of Science in Business (MBA) from Drexel University
as well as Doctor Of Philosophy (Ph.D) in Organizational and Management
Psychology from Southwest University. He is currently listed in Who’s Who In
The East and West, Who’s Who In The World, Who’s Who In Finance and
Industry, Personalities In America, International Biography, Who’s Who of
Emerging Leaders In America, and Who’s Who In Executives And Businesses.
For more information about Rob Reider and Reider Associates, visit his web
site at www.reiderassociates.com/otp/ or e-mail him at hrreider@reiderassoci-
ates.com.
Peter B. Heyler, CPA, MBA, is president of his own consulting firm, PBH
Executive Services, based in Missoula, Montana. He specializes in the areas of
strategic, financial, and business development planning for small and medium-
sized clients in a variety of businesses. He has experience and expertise in gener-
al management, accounting, finance, business strategy, personnel management,
and international business.
Mr. Heyler has conducted CPE programs for the AICPAand many state CPA
societies. He also presents seminars, workshops, and training programs for edu-
cational and private organizations. He has been a full-time and/or adjunct facul-
ty member of Rider College, Beaver College, Ursinus College and Bucks County
(PA) Community College. Involvement in international consulting and manage-
ment education with the United Nations Industrial Development Organization
(UNIDO), Global Volunteers, the U.S. Agency for International Development
(AID), and the University of Pennsylvania Wharton School’s Applied Research
Center has also been part of his past experience. He has had teaching and/or con-
sulting experience in Ghana, Zambia, India, Pakistan, Thailand, Singapore, Hong
Kong, Indonesia, Egypt, Albania, Poland, Ukraine, Sri Lanka, China, Vietnam,
Romania, Spain, and England.
Mr. Heyler is course co-author and seminar facilitator of the following CPE
programs presented by Reider Associates:
• How to Evaluate Capital Investment Opportunities
• Managerial Accounting: AHow-To Guide for Management Decisions
• Strategic Budgeting and Planning for Competitive Advantage
• Effective Controllership for the Smaller Business
About the Authors vii
• Cash Flow: Managing the Lifeblood of the Organization
• Financial Statement Analysis for Profit Improvement
• Communicating Financial Information to Operations
With nearly 15 years prior experience as an executive in private industry, Mr.
Heyler assumed a variety of financial management responsibilities for three man-
ufacturing companies, including Vice President of Finance and Administration,
Treasurer, and Chief Financial Officer. Previously he was a Senior Accountant and
Consultant with Arthur Young & Co. in New York and Philadelphia where he pro-
vided services to many clients in widely diverse industries.
Mr. Heyler earned a BA degree in Economics/Mathematics from Yale
University and an MBAdegree from Harvard Business School. He also received
his CPA certificate from New York and Pennsylvania. He is a member of the
American Institute of Certified Public Accountants, the Pennsylvania Institute of
Certified Public Accountants, the Montana Society of Certified Public
Accountants, the Institute of Management Consultants, and the National
Association of Corporate Directors, and has served on the boards of several for-
profit and not-for-profit organizations.
For more information about Peter Heyler or PBH Executive Services, the e-
mail address is [email protected].
Rob and Peter have been seminar partners for over twenty years. In this
capacity, they have co-developed, authored, and presented numerous profession-
al seminars and self study courses.
IT IS A GOOD AUTHOR
WHO KNOWS HIS OWN MATERIAL.
ACKNOWLEDGMENTS
The authors wish to acknowledge assistance from several people in assem-
bling information for this book: Mark Lyons, president of Community Bank
in Missoula, Montana, along with John Giuliani and Anne Robinson from
Community Bank; and Neil Kyde of Neil G. Kyde, Inc. of Holicong, Pennsylvania.
Their input and assistance in checking accuracy of certain parts of the book are
greatly appreciated. However, the authors wish to absolve them all from any
errors that may appear. Any such errors, of either commission or omission, are
totally the responsibility of the authors.
We also recognize that much of the value of this book has been the result of
seminar participants who over the years have added comments and suggestions
about the material that have found their way into the book. While we cannot
explicitly thank them by name, we do acknowledge the value of their participation.
It would be improper and ungrateful not to recognize the patience and stam-
ina of our respective wives, Barbara Reider and Gingy Heyler. Without their will-
ingness to put up with our frustrations, deadlines, and often aggravating
behavior, the project would never have been completed.
viii
INTRODUCTION
CASH IS KING! Cash availability is the lifeblood of the organization. With
it, assuming there is proper management and economical, efficient, and
effective operations, the company can grow and prosper—without it the
organization perishes. Like the absence of water to anything living, the absence of
cash to the business means death—slow, torturous, physically painful, and men-
tally agonizing.
Business owners, managers, shareholders, and many others have become
enamored with sales and revenue increases, reported profits, earnings per share,
price–earnings ratios, cost reductions, and related concepts that focus on the market
capitalization of the business and its related stock price per share. Such sales and
revenue increases calculated on accrual-based accounting principles may be unreal-
istic when it comes to real sales to quality customers that can be collected in a time-
ly fashion that ensure a real profit to the business. While these new yardsticks may
be significant and even elegant scorekeeping measures for determining how well
the enterprise is doing financially, they have minimal significance for the business
without cash—unable to meet payroll, pay vendors, or—horror of horrors—make
requisite tax payments. Profit is a periodic measure, calculated monthly, quarterly,
and annually. Cash, however, is a daily concern. The eager search of the daily mail
for incoming checks is not just greed or lust—it is often a survival issue.
This book concentrates on cash management, the lifeblood of any business
enterprise. The purpose of these materials is to help readers understand how to
manage, plan, and analyze cash flow for their organizations. General focus is on
helping the reader understand:
• Cash flow and management techniques necessary for the business to func-
tion economically, efficiently, and effectively
• How to recognize and manage effectively the principal factors affecting
cash receipts and cash disbursements in the organization
• The impact of operations on the cash flow of the company
• Organizational planning
1