Douglas Roberson, president of Atlantic Network Systems, "woke up one morning and realized we were out of cash." The Cary, N.C., data- and voice-systems integrator had been growing so quickly -- from $100,000 in sales during its first year to $460,000 the next -- that its staff never worried about things like how to pay for supplies or how to float accounts receivable, Roberson recalls.
By the end of 1988, when Atlantic Network was two years old, "receivables had gone through the roof," says Roberson. "I actually believed that the more money companies owed us, the better shape we were in." Then, during a long collection dry spell, Roberson watched "our money go out and nothing come in. We went into the hole as far as we could, using our existing credit lines to keep us going while we waited for invoices to be paid."
He gradually realized that managing cash flow is different from simply accumulating sales. "If you don't do serious projections about how much cash you'll need to handle sales -- and how long it will take to collect on invoices -- you can wind up out of business, no matter how fast you're growing," he says. In fact, during a cash-flow crisis, fast growth usually exacerbates problems because you're spending cash on supplies and payroll -- usually at an accelerated pace -- while waiting 45 days or longer to collect receivables.
Fortunately, Roberson had built up enough credibility with his bankers -- thanks to detailed monthly financial reports and sales growth that repeatedly exceeded projections -- that he was able to win an emergency loan to help Atlantic Network hold on until it revamped its cash-flow systems. Now Roberson and his partner perform elaborate cash-flow projections once a year, and they update them "on a reality basis" each month. The result: the company was solidly profitable last year on sales of $9.3 million. But Roberson still sets cash-flow-improvement goals: "What I want to do next is figure out how to collect receivables faster from our big-company and foreign accounts, which now take 45 to 60 days to pay. I want to bring them in line with our other, faster-paying accounts."* * *
Read All About It
Cash-flow management sounds like a complicated process, but it often boils down to collecting and keeping cash in your business. For some excellent tips, especially on the cost-cutting front, consider reading Cash In on Cash Flow , by A. David Silver (AMACOM, 212-903-8087, 1994, $24.95). The message of this 200-page book: foster growth by enhancing financial liquidity.