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Cash flow management

Does it feel like you’re going the wrong way down a one-way street?


February 16, 2022
By Bob Dale and Morris Slemko

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Photo © Lakee MNP / Adobe Stock

Based on two industry surveys sponsored by PrintingUnited Alliance and conducted by NAPCO Research, 2020 sales decreased by 24 per cent for the industry as a whole although specific company results varied dramatically. However, in the first two quarters of 2021, sales rebounded 15 per cent. This increase is a bit misleading since there is still a large gap from 2020 to 2021. A decrease of 25 per cent requires an increase on the reduced amount of 33.3 per cent to just get even.

Many companies have developed a reliance upon government benefits. Programs ended or changed substantially in the fall of 2021, thus reducing the financial support. This is no surprise, as we all knew it was coming.

Business was recovering slowly until this last quarter. According to major Canadian paper merchants, demand for paper in this last quarter exceeded demand in the previous four quarters. Business challenges remain strong. Competitive pressures and limited paper supply were compounded by the challenge of assimilating the never-ending notices of paper and other consumable price increases.

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Proactive or reactive

Companies that took action during the pandemic to manage expenses to volumes, improve efficiencies and conduct housekeeping (i.e. clean up estimating standards) fared better than those that did not. Further, there was a need to adopt a cautious approach to business recovery by gradually increasing costs while basing the additions on a realistic/conservative projection of sales.

Possible actions

Short-term actions to improve cash flow include:

  • aggressive collection of receivables;
  • ensure jobs are priced profitably, with margin;
  • prioritize good clients who pay within terms; and
  • charge for and collect paper price increases.

Long-term actions include:

  • develop reliable credit sources;
  • manage relations with lenders and key suppliers;
  • calculate and understand loan covenants imposed by lenders;
  • be upfront with lenders and suppliers; and
  • work together to build an achievable plan.

It is important to recognize the importance of cash flow. It is equally critical to understand the impact of other non-cash costs like depreciation. Business owners who rely too much on cash flow projections for pricing do not build sustainable foundation to continue to survive and thrive. In the long-run, you must cover all costs in order to survive and prosper.

Cash flow is not profit

Cash flow refers to the net balance of cash moving into and out of a business over a specific period of time. Profit is the balance remaining when all of a business’s expenses recorded on an accrual basis (including interest, depreciation, amortization and taxes) are subtracted from its revenues for a specific period of time.

A company needs to manage its profits and its cash flow. It is possible for a company to be profitable and have negative cash flow (e.g. a company that is growing quickly needs cash to finance its increasing receivables and inventory). It’s also possible for an unprofitable company with decreasing sales to have positive cash flow in the short-run, as it reduces its receivables and inventory.

Managing cash is critical for businesses, as cash is king!

Bob Dale is vice-president and Morris Slemko is the CFO of Connecting for Results, Inc. They can be reached at info@connectingforresults.com.

This article originally appeared in the January/February 2022 issue of PrintAction.