Generating Profit is Critical, Cash Flow is Survival

Gershon Morgulis: Alright.

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Gershon Morgulis: Welcome, everyone. Thank you all for joining us today.

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Gershon Morgulis: I’m happy to be here. I’m Gershon Margolis, I’m the founder of Imperial Advisory. We are a CFO firm, so we work on larger companies, we’ll work as they

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Gershon Morgulis: as an interim CFO, or will do work for a CFO,

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Gershon Morgulis: Right? A good CFO who needs help with something, whether it’s a project or some

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Gershon Morgulis: short bandwidth, whatever the case may be. With smaller companies, we come in as the fractional CFO.

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Gershon Morgulis: So we take that off of the CEO’s plate, right? He’s… or she is tired of being their own CFO. We’ll come in as a part-time CFO, and then we do a variety of other

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Gershon Morgulis: Consulting.

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Gershon Morgulis: the CFO function.

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Gershon Morgulis: Anyway, we have an amazing team. Most of our people have

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Gershon Morgulis: 30 or more years of experience, and we help business owners

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Gershon Morgulis: By helping them know that they got finance covered. Anyway… Today,

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Gershon Morgulis: we’re here for a webinar about cash flow. And I’m really excited because we have Marty speaking today. Marty is one of our amazing CFOs. He has many decades of experience in a variety of roles within accounting and finance growing up, and to ultimately being

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Gershon Morgulis: a CFO, he’s been a fractional CFO for a while now, but has a ton of, you know, real

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Gershon Morgulis: CFO.

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Gershon Morgulis: full-time CFO experience.

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Gershon Morgulis: And… I’m very much looking forward to this webinar and to learning from him about Profitability versus cash flow.

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Gershon Morgulis: Before I hand it over to Marty, there’s two things I always like to do, and one is to thank the people who… well, thank you to all our guests for coming, because that’s always fun. Thank you to Tony for producing this, and then I’m going to welcome the people from our team whose faces I can see.

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Gershon Morgulis: And so Marty, obviously, Tom Amato, Dean, Bob, Stephanie. Elizabeth.

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Gershon Morgulis: And… Again, thank you, Tony, for putting this together. And without further ado, Take it away, Marty.

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Marty Latman: Thank you, Gershon, appreciate it.

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Gershon Morgulis: Good morning, everybody.

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Marty Latman: Hopefully everybody’s doing well in this wonderfully.

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Marty Latman: Sunny, warm day here.

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Marty Latman: Mmm.

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Marty Latman: the Northeast, so to speak.

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Marty Latman: For this session, I’ll put up the slides shortly, and we’ll go through the slides. Should you have questions.

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Marty Latman: during the presentation, just put them in the chat. Tony will monitor the chat, and we’ll try to hit them as we go through it.

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Marty Latman: Hopefully, you know, as a result, Or a benefit from

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Marty Latman: attending today’s session, you’ll have a clearer picture of…

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Marty Latman: cash flow, and the importance of cash flow for your companies, and as I call it at times, your survival.

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Marty Latman: So, hopefully, technically, we won’t have any issues.

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Marty Latman: We’ll try now. We’ll see what happens.

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Marty Latman: Can everybody see the screen?

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Gershon Morgulis: Yep.

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Marty Latman: We got it all.

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Marty Latman: Okay, everybody, let’s talk about, you know, business health.

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Marty Latman: And generating profit, which is critical.

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Marty Latman: But really, the cash flow Is the survival of your company.

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Marty Latman: In going through this, we talk about the cash flow.

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Marty Latman: Really is survival.

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Marty Latman: Many companies can show profitability.

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Marty Latman: on paper.

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Marty Latman: But they run out of cash.

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Marty Latman: And the question is, why?

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Marty Latman: If you’re profitable, one would assume

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Marty Latman: That you’re not going to run out of cash, but that is not… really what happens. So…

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Marty Latman: In working with cash flow, It is a critical… Peace.

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Marty Latman: Of the finance function.

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Marty Latman: And it really has to be done correctly.

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Marty Latman: So that… The company will survive and continue.

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Marty Latman: To generate a profit.

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Marty Latman: As we go through it.

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Marty Latman: I want to just spend a couple seconds…

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Marty Latman: Going through the main three statements that we are all accustomed To viewing and preparing.

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Marty Latman: And really what the difference is, because each one of the…

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Marty Latman: statement. It’s somewhat unique and has a different purpose.

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Marty Latman: Everyone, when they first say, well, what is the company? Let’s talk about the…

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Marty Latman: The income statement, or the statement of operation.

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Marty Latman: Why?

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Marty Latman: Well… It shows a company if it’s profitable. Is it making money, supposedly?

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Marty Latman: and the… The income statement, what it does.

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Marty Latman: It really focuses on the revenue, That the company earns.

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Marty Latman: And the expenses that it incurs.

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Marty Latman: However, The statement of operations, the income statement, It’s really based…

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Marty Latman: On the accrual basis of accounting.

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Marty Latman: Okay, it’s not cash.

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Marty Latman: It’s related to when did I earn my revenue, And when did I incur… My expenses.

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Marty Latman: For instance, if I make a sale today.

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Marty Latman: I earned the revenue today. It’s pretty simple.

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Marty Latman: And I will invoice my customer today.

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Marty Latman: Let’s say we have a term’s 45 days.

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Marty Latman: Well… We all know we’re not going to receive the cash today from that customer.

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Marty Latman: We anticipate that we will receive it in 45 days.

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Marty Latman: The profit went up.

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Marty Latman: But the cash hasn’t changed.

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Marty Latman: As of today, according to the statement of income, or the statement of operations.

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Marty Latman: One would anticipate That that invoice for that sale will be paid in 45 days.

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Marty Latman: Sometimes… It might not be paid until 50 days.

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Marty Latman: And that will affect our cash flow, and we’ll look at that as we go through.

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Marty Latman: The second major statement that most people would look at Would be the balance sheet.

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Marty Latman: And the balance sheet, Which is also the… based on an accrual basis of accounting.

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Marty Latman: But what that does… The balance sheet will be focusing on your assets, What you own, Your liabilities.

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Marty Latman: what you owe, and the equity That one has built.

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Marty Latman: in the organization.

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Marty Latman: Over the years.

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Marty Latman: The balance sheet, however, It is not for a period of time.

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Marty Latman: It’s at one specific date.

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Marty Latman: So you could have… cache of… Well, I’ll see you.

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Marty Latman: $500,000 today.

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Marty Latman: But tomorrow… They could have 300,000.

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Marty Latman: It could swing one day.

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Marty Latman: So the balance sheet… Which will talk about assets and liabilities and equity.

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Marty Latman: It’s based upon one day in time.

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Marty Latman: The statement of income, or the income statement, that’s based on a period of time

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Marty Latman: But… it’s not cash. It’s accrual accounting.

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Marty Latman: Okay.

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Marty Latman: so, most people concentrate on these two statements.

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Marty Latman: Statement of operation, and the balance sheet.

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Marty Latman: However, the cash flow statement, which I consider is the most important statement of the three.

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Marty Latman: What the cash flow statement will show…

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Marty Latman: It’s the actual movement of cash during a period of time.

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Marty Latman: It’ll generally be the same period of time that you’re… Statement of Operations… Has been prepared for.

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Marty Latman: It will show you… That, you know, you receive so much in cash.

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Marty Latman: And it will show you you have paid out so much in cash.

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Marty Latman: The cash flow statement… If we started working it as a forecast going forward.

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Marty Latman: That’s when it really gets to show you, can I pay my bills?

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Marty Latman: This is the integral part of the business.

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Marty Latman: The three statements… Once again, if you look at it, The income statement will say.

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Marty Latman: Well, did I make money?

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Marty Latman: And the balance sheet will say, This is what I own.

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Marty Latman: And this is what I owe.

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Marty Latman: But your cash flow statement Which, on a historic basis, which is… Done.

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Marty Latman: Whoops, what happened there?

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Marty Latman: Did we lose something?

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Gershon Morgulis: Tony, it says you became host.

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Toni Clair: Sorry, yeah, could you try sharing your screen again, Marty?

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Marty Latman: Yeah, okay, I don’t know It’s not allowed.

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Toni Clair: It should allow you. One second.

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Marty Latman: Okay.

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Marty Latman: Well, this was a short presentation.

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Toni Clair: Can you try one more time?

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Marty Latman: Okay, hang on.

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Toni Clair: If not, I’ll share it for you.

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Marty Latman: Okay, here we go.

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Toni Clair: Thank you.

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Marty Latman: Okay, we’re back to where we were, so we could continue.

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Marty Latman: But the cash flow statement, really what that does is show you Historically, how the… organization.

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Marty Latman: Really survived on its cash.

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Marty Latman: Going forward, when we start working on cash flow forecasted statements, that will show you how the company can survive going forward.

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Marty Latman: and grow.

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Marty Latman: without…

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Gershon Morgulis: Having your cash forecast.

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Marty Latman: You’re not knowing what’s gonna happen with your cash.

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Marty Latman: To pay your obligations?

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Marty Latman: for, you know, to accumulate, so…

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Marty Latman: For me, it’s the cash flow statement which you should be looking at.

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Marty Latman: In working with the cash flow statement, the general premises and constructing it

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Marty Latman: We’re gonna start with the period in time.

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Marty Latman: At the start, which is… what was my cash balance at the beginning of the period?

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Marty Latman: And that you will find on your balance sheet.

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Marty Latman: And then what’ll happen… Then you started seeing your cash flows.

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Marty Latman: No.

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Marty Latman: Cash flows… will be… On your inflows and your outflows?

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Marty Latman: On your inflows, you really have to know the detail of what’s happening in the organization.

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Marty Latman: Am I receiving cash from sales today? Are these cash sales?

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Marty Latman: when am I going to receive my cash from my credit customers, you know?

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Marty Latman: The terms were 45 days.

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Marty Latman: Did I receive this on the 45th day.

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Marty Latman: If not, what’s going on in my operation? Is there a problem with the customer?

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Marty Latman: At the same time, other inflows relate to other types of cash coming in. Cash from bank loans.

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Marty Latman: Cash coming in from contributions by the owners.

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Marty Latman: Cash that you have paid if you’ve sold an asset today, and you received cash for that today.

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Marty Latman: Those are generally what your inflows would look like.

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Marty Latman: There are other ones, but these are the main ones.

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Marty Latman: So, if you take your… Cash in, starting with your cash balance for this one period.

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Marty Latman: Add the cash that you’re receiving.

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Marty Latman: And then what you want to take out is the cash that you’re going to pay. It’s going to be your outflows.

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Marty Latman: And your outflows… Both of them, these are the general ones, which we all anticipate.

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Marty Latman: There were operating expenses.

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Marty Latman: It’s not the operating expenses that we incurred.

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Marty Latman: It’s the operating expenses that we are paying cash out on.

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Marty Latman: It’s your payroll and your payroll taxes.

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Marty Latman: When you pay your payroll, when you pay your taxes, It’s for the…

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Marty Latman: Cost of your inventory that you purchased.

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Marty Latman: when you are paying your vendors for the inventory. Now, when you ordered it, ordered the inventory.

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Marty Latman: Not when it came through your warehouse door.

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Marty Latman: But it’s when you are actually paying your vendor for those those goods.

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Marty Latman: Also, capital expenditures.

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Marty Latman: You know, you purchase equipment, it’s when you’re paying for the equipment, or for the software. It’s all based upon the time that the cash is paid out.

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Marty Latman: of the organization. It relates to loan payments, taxes, if we’re paying dividends.

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Marty Latman: To shareholders, or we’re paying to the owners on their drawers, etc.

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Marty Latman: And then the result of your cash inflow?

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Marty Latman: And your outflow.

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Marty Latman: Plus your opening cash balance.

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Marty Latman: We’ll give you your ending cash.

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Marty Latman: For that period of time, Which then becomes, for the next term, the opening cash balance.

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Marty Latman: So, it’s… Beginning… Cash in… Plus, cash out, minus… this is my ending cash.

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Marty Latman: It’s pretty simple when you talk about it in that terms.

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Marty Latman: Now, talking on cash flow, Which is really looking forward.

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Marty Latman: And which is critical for an organization.

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Marty Latman: To do their cash flows.

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Marty Latman: The period of time to do it is dependent

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Marty Latman: Upon the type of organization and the stage it’s in.

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Marty Latman: If you have volatile sales, weekly forecasting.

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Marty Latman: And my… Book. Should be done.

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Marty Latman: And you can do weekly forecasting?

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Marty Latman: And monthly forecasting?

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Marty Latman: Once you get past 6 months.

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Marty Latman: on your weekly and monthly forecasting, it starts getting a bit gray. But what you really have to do is create, in my mind, the way I do it, a rolling-type forecast.

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Marty Latman: That after you… The past one week.

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Marty Latman: And you compare… your actual…

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Marty Latman: cash results at the end of that week, what went in, what went out. Compare it to what you’re forecasting.

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Marty Latman: Then you add another week at the end of the period that you are in, that you are doing your forecast for.

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Marty Latman: Right.

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Gershon Morgulis: Quick question. When you say that cash is tight or sales are volatile, weekly forecasting.

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Gershon Morgulis: Does that mean to have a 13-week forecast, or are you saying every week you should be re-forecasting, or both?

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Marty Latman: I look at a volatile Situation for a company.

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Marty Latman: I generally go to 6 to 8 weeks.

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Gershon Morgulis: I mean, you’re looking out 6 to 8 weeks, but then you’re… how frequently are you re-forecasting that?

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Marty Latman: Every week.

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Gershon Morgulis: Okay.

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Marty Latman: I do it every week. What you do, you create a forecast

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Marty Latman: For the period that you’re looking at, in this case, let’s say it’s 8 weeks.

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Marty Latman: And you have 8 individual weeks.

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Marty Latman: That’s your forecast. And then you have, on the side, an actual result for the same 8 weeks, and you break it out, and each week you compare this week, what you forecasted, to what actually happened.

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Marty Latman: I have an example I’ll show you at the end of the presentation.

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Marty Latman: If it’s a more mature-type organization, and the sales aren’t volatile, and there’s a lot of things that are predictable, you could then do a… I’ll call it a 12-month

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Marty Latman: Forecast where you’re forecasting month by month by month.

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Marty Latman: And then a long range, and generally a lot of the banks require this.

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Marty Latman: When you’re going for different types of loans, especially credit lending for credit lines.

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Marty Latman: They generally look for a 2-3 year cash flow.

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Marty Latman: It’s a high level…

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Marty Latman: You need to review it generally on an annual basis, but at the same time,

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Marty Latman: Formally, you’d look at it on an annual basis.

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Marty Latman: But you would look at it informally, On a regular type basis.

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Marty Latman: Okay, there’s nothing wrong with having a long-term forecast for 2 to 3 years, but also, at the same time, having a monthly forecast, or a weekly forecast, depending upon how cash is for the organization.

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Marty Latman: And how sales are going, etc.

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Marty Latman: In working with the cash forecast.

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Marty Latman: There are really 5 important things to look at.

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Marty Latman: And here they are.

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Marty Latman: Bear in mind that cash flow It’s based upon timing.

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Marty Latman: not profit.

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Marty Latman: Once again, coming back to the three statements.

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Marty Latman: Your statement of operation, or your income statement.

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Marty Latman: It’s based on the accrual basis of accounting, Okay… It’s when… Sales… are earned.

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Marty Latman: Not necessarily paid, and expenses are incurred.

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Marty Latman: Not when they’re paid.

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Marty Latman: But a cash flow will reflect that. When monies… actually come in.

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Marty Latman: The monies actually go out.

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Marty Latman: You know, you look at it, if you invoice, an invoice is sent.

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Marty Latman: That doesn’t mean the cash has been received.

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Marty Latman: So the invoice sent will go on to your income statement.

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Marty Latman: But your cash received, that’s gonna go on your…

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Marty Latman: cash flow when you receive it. Same thing about expenses.

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Marty Latman: The book expenses, You’ve incurred the expense, but you do not necessarily pay it.

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Marty Latman: When you do pay it, you’re gonna see it on your cash flow statement.

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Marty Latman: And… Most companies If they’re profitable.

340
00:28:08.020 –> 00:28:09.939
Marty Latman: But they’re running out of money.

341
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Marty Latman: It’s because the timing differences between The revenue that was earned?

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Marty Latman: Versus the revenue that’s been collected.

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Marty Latman: ending… The expenses that were incurred

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Marty Latman: Versus the expenses that were paid.

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Marty Latman: So, cash flow is really about the timing Whereas the income statement

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Marty Latman: Really talks about, from an accounting standpoint, the profitability.

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Marty Latman: The second…

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Gershon Morgulis: By the way, can I jump in for a second?

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Marty Latman: America.

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Gershon Morgulis: the fuck?

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Gershon Morgulis: Sometimes, you can… Have situations where people are booking profit, And…

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Gershon Morgulis: That profit is never gonna… booking revenue and that revenue is never gonna come in.

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Gershon Morgulis: And so, when you have that kind of stuff, you know, that bad debt, essentially.

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Gershon Morgulis: Can also really pop when your cash flow doesn’t match your income statement for long enough.

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Gershon Morgulis: So, you book it as revenue in year one, and it didn’t come in, so it doesn’t show up cash then, and it doesn’t show up cash later, and eventually you look at it and say.

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Gershon Morgulis: Now, we’re booking more revenue, and then you find that stuff kind of hiding on the balance sheet.

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Marty Latman: What… and you’re correct. What I…

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Marty Latman: I look at when I’m working on cash flow statements, especially cash flow forecasts, It’s not only used

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Marty Latman: I not only use it.

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Marty Latman: to monitor where the cash is going, or what I anticipate coming in, okay? It also shows me how to monitor the performance of the organization.

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Marty Latman: It helps me look at On the sales side, the receivables.

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Marty Latman: How’s the receivable people doing? Are they collecting

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Marty Latman: The sales, based on the terms.

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Marty Latman: Or…

365
00:30:13.690 –> 00:30:19.229
Marty Latman: Are some of the customers extending terms, and we don’t know about it, and we’re not getting the cash?

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Marty Latman: What you really have to do when it comes to the cash flow is know your inflows.

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Marty Latman: And your outflows in detail.

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Marty Latman: You really have to know them in detail, because it helps you see how the operations of the organization is going.

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Marty Latman: And if you have a good cash flow forecast.

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Marty Latman: And then you started comparing it to actuals, and the actuals are not matching up with your forecast.

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Marty Latman: It points you in to different locations to examine and say, where’s the issue?

372
00:30:59.950 –> 00:31:03.340
Marty Latman: What’s the bottleneck? What’s causing these problems?

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Marty Latman: Cash flow…

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Gershon Morgulis: Can I, can I…

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Marty Latman: Yep.

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Gershon Morgulis: Jump in one more thing. It’s not just about bottlenecks.

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Gershon Morgulis: You could have a situation where you have a lot of cash.

378
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Gershon Morgulis: And that cash is because you did a really good job at collecting.

379
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Gershon Morgulis: But those are, and we’ve seen this, like.

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Gershon Morgulis: Where someone will collect money that they don’t really deserve, right? Some type of a deposit.

381
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Gershon Morgulis: And then suddenly they’re sitting on lots of cash.

382
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Gershon Morgulis: And they ignore their income statement, and now they’ve got this cash, and then they go spend the cash or make distributions, and then they come 6 months later and say, why do we have no money? Well, it’s because you took all your sales money for the year, and you distributed it at the end of last year when you got your prepayment. So it really goes in both directions.

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Marty Latman: It does, and when you look at it, The cash flow statement Well, Forecast will look at.

384
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Marty Latman: That is between the operations statement, you know.

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00:32:04.740 –> 00:32:18.709
Marty Latman: In the balance sheet. Because in that situation, which you just said, you’re bringing in the cash based upon the deposit, but at the same time, what you’re doing is that on your balance sheet, you’re building up

386
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Marty Latman: your liabilities for the deposit, and you’re gonna see that. Right. So…

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Marty Latman: Yes, you’re right. You have to look at it both ways, but cash flow is really integral to the operation.

388
00:32:32.550 –> 00:32:40.229
Marty Latman: What… We would look at, okay, is that, you know, the customer payments by dates.

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Marty Latman: Yeah, when you expect it, and when I say when I expect it, I look at… receivables…

390
00:32:49.490 –> 00:32:53.020
Marty Latman: And my customers, when I start forecasting them out.

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00:32:53.890 –> 00:32:58.289
Marty Latman: What’s really their average days that they pay us?

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00:32:59.260 –> 00:33:03.580
Marty Latman: Not what the terms are, but what the actual days are.

393
00:33:03.950 –> 00:33:09.600
Marty Latman: Because I’d like to see… take a conservative approach on my cash flow.

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00:33:09.860 –> 00:33:15.200
Marty Latman: If we have terms of 45 days, or let’s say our terms are 30 days.

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00:33:15.530 –> 00:33:20.519
Marty Latman: And we have customers that are paying us in 40, 45 days.

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00:33:20.690 –> 00:33:21.530
Marty Latman: Okay.

397
00:33:21.710 –> 00:33:22.530
Marty Latman: It…

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00:33:22.730 –> 00:33:36.650
Marty Latman: Really is not, wise to show on your cash forecast that you’re anticipating customer payments in 30 days, because that’s not what’s really happening.

399
00:33:36.910 –> 00:33:37.680
Marty Latman: Okay.

400
00:33:37.980 –> 00:33:45.139
Marty Latman: So, I forecast customer receipts coming in based on their average days to pay.

401
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Marty Latman: There’s also on your inflow, you know, when I anticipate that I have to do drawdowns on my credit lines, or when I need to increase

402
00:33:56.380 –> 00:34:11.639
Marty Latman: my capital injections that I need for the organization, when I might be receiving my, tax refunds coming in, if I have it, or if I have to, you know, if I’m receiving interest.

403
00:34:13.199 –> 00:34:21.420
Marty Latman: So you really try to look at the item, and also the anticipated date that you expect to receive it.

404
00:34:22.060 –> 00:34:27.949
Marty Latman: On the other side of it, on the outflow, you want to know in detail, well, what’s my payroll?

405
00:34:28.469 –> 00:34:32.190
Marty Latman: Is my payroll somewhat variable?

406
00:34:32.780 –> 00:34:35.220
Marty Latman: Because of the different hours worked.

407
00:34:35.510 –> 00:34:46.249
Marty Latman: Or is it really, you know, if it’s a salary-type payroll, it’s easier to forecast. Well, I know I’m gonna have payroll, maybe I pay it twice a month.

408
00:34:47.120 –> 00:34:53.809
Marty Latman: Well, in my forecast, I’m gonna forecast when I’m gonna pay that on the first And on the 15th.

409
00:34:54.530 –> 00:35:01.739
Marty Latman: Or if I have to pay my payroll every 2 weeks, my cash forecast is gonna show that every 2 weeks.

410
00:35:02.280 –> 00:35:10.600
Marty Latman: At the same time, outflow on the rents. Generally, rents come, due on the first Of the month.

411
00:35:10.930 –> 00:35:15.629
Marty Latman: Well… Generally gonna forecast that around the first of the month.

412
00:35:15.970 –> 00:35:23.829
Marty Latman: And keep in mind, you know, some of these expenses, you really have to break out as to what’s

413
00:35:23.960 –> 00:35:28.519
Marty Latman: fixed expenses, And what’s variable expenses?

414
00:35:31.510 –> 00:35:44.199
Marty Latman: your fixed expenses, you really cannot move those. Those are pretty much set in stone, that these are minimum amounts that you’re going to pay, whereas your variable expenses

415
00:35:44.500 –> 00:35:49.419
Marty Latman: You have some wiggle room, as I’ll call it, as when I’m gonna pay it.

416
00:35:50.140 –> 00:35:56.900
Marty Latman: Same thing, you know, Ural, you know you’re gonna be paying your utilities. Generally, you’re paid around the same time.

417
00:35:57.220 –> 00:35:59.190
Marty Latman: Same thing with your insurance.

418
00:36:00.070 –> 00:36:02.430
Marty Latman: Are your inventory purchases?

419
00:36:02.970 –> 00:36:10.989
Marty Latman: Once again, based upon your… Payment history with your vendors, and the terms that you have.

420
00:36:11.240 –> 00:36:15.550
Marty Latman: You could schedule that out.

421
00:36:15.940 –> 00:36:19.170
Marty Latman: If you feel that your cash flow is tight.

422
00:36:21.850 –> 00:36:26.840
Marty Latman: You could talk to some of your vendors to possibly give you extra terms.

423
00:36:27.310 –> 00:36:31.790
Marty Latman: Or you just tell them, you know, right now, you know, my cash is a little tight.

424
00:36:32.100 –> 00:36:34.749
Marty Latman: Give me about another week that I have to pay.

425
00:36:34.940 –> 00:36:38.100
Marty Latman: And generally, they’re pretty flexible if you communicate.

426
00:36:38.340 –> 00:36:43.059
Marty Latman: But you want to be able to schedule out What we’re looking at…

427
00:36:43.360 –> 00:36:47.570
Marty Latman: Based upon what we feel we’re gonna have to pay, and when we’re gonna have to pay it.

428
00:36:47.920 –> 00:36:55.989
Marty Latman: The loan payments are generally fixed when we have to pay those. Same thing with taxes. And then we have, you know, some type of

429
00:36:56.120 –> 00:37:00.119
Marty Latman: One-off type expenses that we’ll have to pay, or…

430
00:37:00.260 –> 00:37:04.259
Marty Latman: Emergency repairs, etc, and seasonal costs.

431
00:37:04.910 –> 00:37:07.689
Marty Latman: So, really, you have to know your cash flow.

432
00:37:08.090 –> 00:37:10.660
Marty Latman: The detail of your ins and outs.

433
00:37:12.070 –> 00:37:13.100
Marty Latman: Number 3?

434
00:37:13.350 –> 00:37:20.340
Marty Latman: As I mentioned, you know, You want to break out your cash flow between fixed, And variable cost.

435
00:37:22.020 –> 00:37:32.109
Marty Latman: where it’s going. My fixed costs, generally, will be those rent, salaries, loan payments, insurance, Someone variable.

436
00:37:32.920 –> 00:37:37.580
Marty Latman: Then, definitely your inventory purchases when you’re gonna pay for them.

437
00:37:38.150 –> 00:37:45.830
Marty Latman: your commissions, It’s a variable amount, but generally you know you’re gonna pay it on a certain date.

438
00:37:46.580 –> 00:37:49.369
Marty Latman: And you could have some wiggle room on that.

439
00:37:49.680 –> 00:37:58.879
Marty Latman: And then your utilities, etc. If cash becomes tight, If it’s tight…

440
00:37:59.060 –> 00:38:01.699
Marty Latman: You have to look at your variable cost.

441
00:38:01.840 –> 00:38:06.209
Marty Latman: As the first Piece of cash.

442
00:38:06.490 –> 00:38:12.359
Marty Latman: That you’re going to probably extend out if your cash is, tight.

443
00:38:12.730 –> 00:38:17.320
Marty Latman: Whereas your fixed expenses, you generally cannot move those.

444
00:38:17.430 –> 00:38:19.330
Marty Latman: From the dates that they are due.

445
00:38:21.940 –> 00:38:25.720
Marty Latman: The fourth part, which a lot of people lose sight of.

446
00:38:27.090 –> 00:38:34.199
Marty Latman: When working on a cash forecast, Do not, in my recommendation.

447
00:38:34.650 –> 00:38:40.160
Marty Latman: Don’t run a forecast where you are going to zero out your cash.

448
00:38:40.850 –> 00:38:43.309
Marty Latman: In your forecast.

449
00:38:43.480 –> 00:38:44.840
Marty Latman: Create a buffer.

450
00:38:45.490 –> 00:38:52.070
Marty Latman: And generally, the buffer of what I do is that I generally have 1 to 3 months of fixed expenses.

451
00:38:52.590 –> 00:38:54.649
Marty Latman: And I’m saying, I do not want to go

452
00:38:55.170 –> 00:38:59.820
Marty Latman: below that. That’s my, threshold.

453
00:39:00.160 –> 00:39:03.079
Marty Latman: the buffer that I’m gonna keep, so if…

454
00:39:03.210 –> 00:39:11.009
Marty Latman: things go off the rails, so to speak, in the operations. At least I could cover my fixed expenses.

455
00:39:11.540 –> 00:39:13.130
Marty Latman: One, two, or three months.

456
00:39:14.110 –> 00:39:22.910
Marty Latman: So, in doing that, You really should create your cash flow forecast With a buffer

457
00:39:23.760 –> 00:39:26.420
Marty Latman: And you determine how much it’s gonna be.

458
00:39:26.780 –> 00:39:33.579
Marty Latman: And then you keep that on your cash flow, because if you… Do not have a buffer.

459
00:39:34.040 –> 00:39:41.189
Marty Latman: and you’re gonna run your cash down to zero on your cash flow forecast. You’re really what I call in fantasy land.

460
00:39:41.300 –> 00:39:44.149
Marty Latman: Okay, because it’s generally not going to happen that way.

461
00:39:45.990 –> 00:39:51.470
Marty Latman: And the final piece that you want to look at In your cash flow forecast?

462
00:39:52.220 –> 00:39:57.030
Marty Latman: Is that… Cash flow should be looked at on a regular basis.

463
00:39:57.860 –> 00:40:04.790
Marty Latman: It’s not a one-time… situation where I prepare it, I forecast, and I just leave it.

464
00:40:04.980 –> 00:40:10.669
Marty Latman: You… You have to look at it on a regular basis. It’s a living document.

465
00:40:10.850 –> 00:40:15.850
Marty Latman: It’s a breathing document. It really… Really?

466
00:40:16.100 –> 00:40:17.930
Marty Latman: Helps the company.

467
00:40:18.200 –> 00:40:21.130
Marty Latman: Okay. Manage its business.

468
00:40:22.020 –> 00:40:28.129
Marty Latman: You know, you look at your cash going forward, you know, well, can I purchase this inventory?

469
00:40:29.090 –> 00:40:34.039
Marty Latman: If… My cash isn’t going to allow that type of purchase.

470
00:40:34.220 –> 00:40:36.050
Marty Latman: Could I speak to my bank?

471
00:40:36.310 –> 00:40:39.179
Marty Latman: To increase my credit line, if need be.

472
00:40:39.360 –> 00:40:45.010
Marty Latman: Or I need an additional infusion of cash by the ownership.

473
00:40:45.670 –> 00:40:46.450
Marty Latman: Okay.

474
00:40:46.670 –> 00:40:51.679
Marty Latman: You really want, as you go through your cash forecast.

475
00:40:52.270 –> 00:40:57.700
Marty Latman: as I said earlier, to also have an actual cache

476
00:40:58.230 –> 00:41:10.909
Marty Latman: statement as to what’s going on in the same period as your forecast, week by week, if that’s the type of cash flow you have, your forecast, and look at each week.

477
00:41:11.280 –> 00:41:18.910
Marty Latman: I forecasted… that I was going to have at the end of this week, $50,000.

478
00:41:19.670 –> 00:41:25.900
Marty Latman: when I’m now looking at it, actually, it was only $30,000.

479
00:41:26.220 –> 00:41:28.030
Marty Latman: Where did I go wrong?

480
00:41:28.310 –> 00:41:30.789
Marty Latman: What caused that shortage?

481
00:41:31.150 –> 00:41:36.990
Marty Latman: Was it that I didn’t get paid for my… Customers on time?

482
00:41:37.520 –> 00:41:43.420
Marty Latman: Was it that I had added expenses that I was not anticipating?

483
00:41:43.660 –> 00:41:50.239
Marty Latman: Okay. Did I have to pay for my inventory more than what I anticipated?

484
00:41:50.360 –> 00:41:55.560
Marty Latman: So it’s really a document that you have to work with on a regular basis.

485
00:41:55.680 –> 00:41:58.820
Marty Latman: Because it is a management tool.

486
00:41:59.740 –> 00:42:11.709
Marty Latman: your cash flow document, your forecast. It really helps you not only see what monies you have available, but it also helps you see how the operation

487
00:42:11.950 –> 00:42:14.240
Marty Latman: Is going on a regular basis.

488
00:42:15.810 –> 00:42:17.989
Marty Latman: Now, what I’ve done over here…

489
00:42:18.800 –> 00:42:29.689
Marty Latman: Hopefully everybody could see it. It might be somewhat of an eye test, but hopefully you’ll be able to gather what we’re doing. What I created here

490
00:42:30.080 –> 00:42:32.500
Marty Latman: Was the sixth week.

491
00:42:33.710 –> 00:42:34.939
Marty Latman: Cash flow.

492
00:42:35.170 –> 00:42:37.440
Marty Latman: Forecast. 6 weeks.

493
00:42:37.820 –> 00:42:46.480
Marty Latman: And I will draw your attention to down here, on this line, Where I’m saying my buffer

494
00:42:47.350 –> 00:42:52.930
Marty Latman: For this company, will be… 150,000.

495
00:42:53.500 –> 00:42:59.679
Marty Latman: I do not want my cash to get under $150,000. That’s my minimum.

496
00:43:00.770 –> 00:43:09.799
Marty Latman: So, in going through here, On week 1, when I’m starting my forecast, I’m starting out with $250,000.

497
00:43:10.540 –> 00:43:11.270
Marty Latman: Okay.

498
00:43:13.020 –> 00:43:14.420
Marty Latman: I know.

499
00:43:15.130 –> 00:43:19.539
Marty Latman: Based upon… You know, talked to the sales department.

500
00:43:19.830 –> 00:43:22.219
Marty Latman: Seeing what we have done in the past.

501
00:43:22.370 –> 00:43:25.800
Marty Latman: that I could anticipate cash sales.

502
00:43:26.380 –> 00:43:27.470
Marty Latman: each week.

503
00:43:28.260 –> 00:43:36.540
Marty Latman: And going through it… I know that generally at the beginning of the month, my cash…

504
00:43:36.880 –> 00:43:41.720
Marty Latman: My cash sales jumped between $1,500 and $2,000.

505
00:43:43.130 –> 00:43:50.179
Marty Latman: And then what I do is that each week, I plot out what I think my cash sales will be.

506
00:43:51.870 –> 00:43:57.769
Marty Latman: Then I look at what my accounts receivable collected will be.

507
00:43:58.330 –> 00:44:06.690
Marty Latman: And in doing this, Once again, I look at the customer’s actual payment history.

508
00:44:07.620 –> 00:44:15.809
Marty Latman: Not necessarily the terms, A lot of the computer systems today will show you two different,

509
00:44:19.130 –> 00:44:22.689
Marty Latman: Two different pieces for a customer.

510
00:44:23.060 –> 00:44:33.750
Marty Latman: A sales customer will generally show you the days outstanding, For their, than when they actually… Pay.

511
00:44:34.300 –> 00:44:50.249
Marty Latman: Okay? Their average dates to pay. At the same time, they will show you the balance that are due based on the credit terms. And you could compare those and see if customers are paying you before terms or after terms.

512
00:44:50.520 –> 00:44:52.709
Marty Latman: And then what I do is that I…

513
00:44:53.230 –> 00:44:56.030
Marty Latman: I plot it out over here, based upon my…

514
00:44:57.520 –> 00:45:04.389
Marty Latman: My customer, my accounts receivable, detail that I have.

515
00:45:05.020 –> 00:45:10.159
Marty Latman: And my receiv… my receivables look like this. This is what I’m anticipating.

516
00:45:10.330 –> 00:45:16.120
Marty Latman: receiving. So, over the 6-week What is going on here?

517
00:45:16.260 –> 00:45:23.050
Marty Latman: Over the 6-week period, I’m anticipating to receive in $1,865.

518
00:45:26.450 –> 00:45:32.690
Marty Latman: I’m looking at this point in week 6, because when I started going down here…

519
00:45:34.110 –> 00:45:50.049
Marty Latman: I’m down to only a cushion here, so I’m still keeping my buffer of $150. My excess cash will only be $3,100, so maybe I need another $10,000 alone from one of the owners.

520
00:45:50.930 –> 00:45:53.300
Marty Latman: They come in minimum?

521
00:45:53.440 –> 00:45:56.609
Marty Latman: Receipts that I might receive from other items.

522
00:45:57.020 –> 00:46:01.540
Marty Latman: It could be my tax refund, could be interest, etc.

523
00:46:02.100 –> 00:46:06.870
Marty Latman: And I come up with what my cash inflow’s gonna look like.

524
00:46:08.920 –> 00:46:11.990
Marty Latman: Then I started looking at my cash outflow.

525
00:46:12.630 –> 00:46:15.790
Marty Latman: And on my outflow, as I mentioned earlier.

526
00:46:15.970 –> 00:46:19.639
Marty Latman: I want to keep my fixed payments separate.

527
00:46:20.380 –> 00:46:22.490
Marty Latman: From my variable payments.

528
00:46:23.720 –> 00:46:28.129
Marty Latman: And I look at this, rents, I generally pay the first week of the month.

529
00:46:28.730 –> 00:46:32.990
Marty Latman: So I’m gonna pay out $15,250 in week 1.

530
00:46:33.810 –> 00:46:39.519
Marty Latman: And then week 5, which is the first week of the following month, I’m gonna pay out the same.

531
00:46:40.550 –> 00:46:47.250
Marty Latman: My salaries… I generally pay my salaries… Every two weeks.

532
00:46:48.540 –> 00:46:50.839
Marty Latman: So the salaries that I’m gonna pay him…

533
00:46:50.990 –> 00:46:58.129
Marty Latman: My estimate’s gonna be $150, because most of my salary’s gonna be, my payrolls are the actual salaries.

534
00:46:59.020 –> 00:47:02.960
Marty Latman: 150… Two weeks later, 150.

535
00:47:04.000 –> 00:47:06.480
Marty Latman: Two weeks after that, 150.

536
00:47:08.100 –> 00:47:11.409
Marty Latman: Here’s the payroll taxes that I’m gonna have to pay out.

537
00:47:12.210 –> 00:47:22.330
Marty Latman: Now, your payroll taxes will vary as the year goes on, based on the FICA, etc, that you’ll have to pay.

538
00:47:22.540 –> 00:47:24.430
Marty Latman: So keep that in mind.

539
00:47:24.790 –> 00:47:31.020
Marty Latman: And then I have a couple of other… Fixed expenses, bank loans.

540
00:47:31.780 –> 00:47:34.740
Marty Latman: I have to pay the bank loan on the second week of the month.

541
00:47:35.390 –> 00:47:38.620
Marty Latman: So here I pay $5,000 over here.

542
00:47:39.690 –> 00:47:44.650
Marty Latman: I pay $5,000 in week 6, which is the second week of the second month.

543
00:47:45.890 –> 00:47:48.779
Marty Latman: I pay my employee benefits.

544
00:47:49.080 –> 00:47:51.080
Marty Latman: The second week of the month.

545
00:47:51.480 –> 00:47:53.730
Marty Latman: Here I have to pay $30,000.

546
00:47:54.480 –> 00:48:00.079
Marty Latman: On week 2, The second week and the second month is also $30,000.

547
00:48:00.650 –> 00:48:10.300
Marty Latman: So I’ve come up with my fixed expenses, which, for this 6-week period, is $663,000.

548
00:48:11.940 –> 00:48:14.409
Marty Latman: Then I started looking at my variables.

549
00:48:16.620 –> 00:48:20.549
Marty Latman: Generally, the biggest one you’ll generally have will be your inventory.

550
00:48:21.270 –> 00:48:26.839
Marty Latman: And this is inventory based upon when I anticipate paying my purchases.

551
00:48:26.980 –> 00:48:35.510
Marty Latman: that I… for the goods that I have received, or if I have to make advances on purchases, and I started scheduling this out.

552
00:48:36.610 –> 00:48:41.210
Marty Latman: commissions, I can pay commissions generally…

553
00:48:41.370 –> 00:48:45.220
Marty Latman: The second or third week of the month.

554
00:48:45.710 –> 00:48:51.250
Marty Latman: And here I have, in this month, I’m gonna pay it out on the third week.

555
00:48:52.840 –> 00:48:54.010
Marty Latman: in this…

556
00:48:54.140 –> 00:49:02.230
Marty Latman: next month is the second week. It could be timing, it could be holidays, and I take that into account as I pay it.

557
00:49:02.780 –> 00:49:06.130
Marty Latman: Utilities, etc, go down.

558
00:49:06.360 –> 00:49:12.799
Marty Latman: And here, In week 3, I had a capital…

559
00:49:14.340 –> 00:49:16.759
Marty Latman: expenditure that I had to make.

560
00:49:16.890 –> 00:49:23.269
Marty Latman: I received… Let’s see, the software, it’s implemented,

561
00:49:23.530 –> 00:49:27.340
Marty Latman: It’s fully approved now that it’s operational.

562
00:49:27.460 –> 00:49:31.510
Marty Latman: And as a result of it, I had to pay the cost

563
00:49:32.120 –> 00:49:36.229
Marty Latman: In week 3, and that’s my $95,000 over there.

564
00:49:38.190 –> 00:49:46.209
Marty Latman: This is my total payments, my fixed and variable payments that I’m going to make over this 6-week period.

565
00:49:46.370 –> 00:49:49.729
Marty Latman: Which is $1,989.

566
00:49:52.180 –> 00:49:57.720
Marty Latman: Here’s my ending cash balance each week that I am forecasting.

567
00:50:00.600 –> 00:50:04.589
Marty Latman: As you could start in seeing, the cash is going down.

568
00:50:07.100 –> 00:50:10.030
Marty Latman: This is the buffer I’d like to have.

569
00:50:12.110 –> 00:50:17.459
Marty Latman: As we see in week 6, My buffer is 150.

570
00:50:18.100 –> 00:50:24.580
Marty Latman: But the cash that I feel I’ll only have at the end of that period is 153.

571
00:50:24.960 –> 00:50:28.800
Marty Latman: So I still covered… my needs…

572
00:50:29.630 –> 00:50:36.110
Marty Latman: But it’s very small, and that’s why I’m looking over here to get another… inflow.

573
00:50:36.780 –> 00:50:38.149
Marty Latman: From the ownership.

574
00:50:38.750 –> 00:50:46.540
Marty Latman: And as you will see, that it’s rolling, so here, at the end of week 1,

575
00:50:47.460 –> 00:50:54.009
Marty Latman: The actual cash that I received is, end up with is $202525,

576
00:50:54.120 –> 00:50:57.420
Marty Latman: And that’s the beginning cache in the second week.

577
00:50:59.040 –> 00:51:03.430
Marty Latman: At the end of the second week, the cache that I have.

578
00:51:03.620 –> 00:51:08.480
Marty Latman: Is it 191, 525, that’s the beginning.

579
00:51:08.850 –> 00:51:11.310
Marty Latman: of Week 3.

580
00:51:11.900 –> 00:51:18.619
Marty Latman: Now, as you could see, When we started this, In week one.

581
00:51:18.850 –> 00:51:21.890
Marty Latman: I had a net cash outflow.

582
00:51:22.630 –> 00:51:24.250
Marty Latman: of $47,000.

583
00:51:27.050 –> 00:51:31.200
Marty Latman: The second week, I reduced my outflow.

584
00:51:31.470 –> 00:51:35.200
Marty Latman: But I still had a negative outflow of $11,000.

585
00:51:36.250 –> 00:51:46.040
Marty Latman: It’s not until week 3… that I have an inflow I have a big inflow.

586
00:51:46.190 –> 00:51:51.809
Marty Latman: On week 4… Because I’m not paying my payroll.

587
00:51:52.370 –> 00:51:55.780
Marty Latman: Okay, my benefits… At that point.

588
00:51:56.650 –> 00:52:03.870
Marty Latman: And then, as you can see, once again, my outflow, I’m gonna need money in week 5.

589
00:52:04.130 –> 00:52:05.610
Marty Latman: And week 6.

590
00:52:07.670 –> 00:52:10.690
Marty Latman: So this organization, it might be profitable.

591
00:52:11.020 –> 00:52:14.020
Marty Latman: But they have to be very concerned at this point.

592
00:52:14.330 –> 00:52:15.650
Marty Latman: On their cash.

593
00:52:16.270 –> 00:52:18.280
Marty Latman: On how they’re spending the money.

594
00:52:18.640 –> 00:52:20.010
Marty Latman: And what does it look like?

595
00:52:20.600 –> 00:52:33.020
Marty Latman: Because over the 6-week period, Over the 6-week period, they had a net outflow Of almost, you know… $97,000.

596
00:52:35.180 –> 00:52:38.210
Marty Latman: So that’s how… the focus…

597
00:52:38.380 –> 00:52:46.370
Marty Latman: would be generated, and how I would look at the cash forecast, and what I would recommend to

598
00:52:46.510 –> 00:52:48.080
Marty Latman: Those on this call.

599
00:52:48.230 –> 00:52:51.990
Marty Latman: On how to really calculate Yokesh.

600
00:52:52.280 –> 00:52:53.320
Marty Latman: Forecast.

601
00:52:53.830 –> 00:52:55.200
Marty Latman: Monitor that.

602
00:52:55.800 –> 00:52:57.469
Marty Latman: Do we have any questions?

603
00:53:01.380 –> 00:53:03.050
Marty Latman: Tony, anything in the…

604
00:53:04.130 –> 00:53:17.930
Gershon Morgulis: I ask my questions along the way, but till someone else jumps in, I’m curious, I see that the minimum… I know this is just an example, but the minimum balance… cash balance here is $150,000, which is one biweekly payroll.

605
00:53:18.250 –> 00:53:23.480
Gershon Morgulis: Is that… is that enough, or would you suggest that, like, a healthy business maybe have

606
00:53:24.000 –> 00:53:28.869
Gershon Morgulis: A month of payroll, or… Two months of payroll, or, like.

607
00:53:28.870 –> 00:53:29.439
Marty Latman: I would…

608
00:53:29.470 –> 00:53:31.119
Gershon Morgulis: Including in that number.

609
00:53:32.330 –> 00:53:39.089
Marty Latman: I would generally have, as I said, on the fixed expenses.

610
00:53:40.290 –> 00:53:46.409
Marty Latman: that I would have, I would generally have one to two months of fixed expenses.

611
00:53:46.890 –> 00:53:48.609
Marty Latman: as my cushion.

612
00:53:48.840 –> 00:53:59.870
Marty Latman: So, as you’ve started looking at here, Over the 6-week period here, We’re talking about 663,000.

613
00:54:00.530 –> 00:54:01.370
Marty Latman: Okay.

614
00:54:01.550 –> 00:54:07.600
Marty Latman: So… You bring up a very valid point, and when you look at it.

615
00:54:08.260 –> 00:54:14.800
Marty Latman: Even though if I want to say I’m going to take one month, Okay.

616
00:54:15.360 –> 00:54:17.579
Marty Latman: It’s only 110,000.

617
00:54:17.930 –> 00:54:21.889
Marty Latman: Okay, that’s pro- how these people have been looking at it, basically.

618
00:54:22.250 –> 00:54:26.530
Marty Latman: But in doing that, the 150 is just covering a payroll.

619
00:54:27.290 –> 00:54:30.129
Marty Latman: So I would have a higher buffer.

620
00:54:30.690 –> 00:54:33.299
Marty Latman: Myself, and going through this.

621
00:54:33.730 –> 00:54:37.159
Marty Latman: But you’d have to work that out as you go through.

622
00:54:40.250 –> 00:54:46.970
Marty Latman: I had one client that I was working on, and the first time I came in,

623
00:54:48.790 –> 00:54:51.660
Marty Latman: Because the Director of Finance left.

624
00:54:52.390 –> 00:54:54.900
Marty Latman: And the first week, I had to run a payroll.

625
00:54:55.650 –> 00:55:00.280
Marty Latman: And I ran a payroll, Which was about $90,000.

626
00:55:01.110 –> 00:55:05.180
Marty Latman: And they had a total of $40,000 on hand.

627
00:55:06.260 –> 00:55:11.700
Marty Latman: And my question to the executive director, we have a problem here, what are we gonna do?

628
00:55:12.360 –> 00:55:22.300
Marty Latman: And, he said, well, as long as we can pay the office staff With what we have.

629
00:55:23.340 –> 00:55:27.999
Marty Latman: I could pay the rest of the people by Monday. I’ll have the money.

630
00:55:28.490 –> 00:55:38.560
Marty Latman: And that’s what we did. And I said, basically, this is not going to happen again. And I put in the controls and the monitoring devices.

631
00:55:38.930 –> 00:55:44.800
Marty Latman: So that they could look at their cash on a regular, weekly basis, and know

632
00:55:44.970 –> 00:55:50.629
Marty Latman: That they’re gonna have enough money to cover their fixed expenses.

633
00:55:53.040 –> 00:55:57.020
Gershon Morgulis: Now, one thing that… Go ahead.

634
00:55:57.300 –> 00:56:10.979
Dean Zambelli: So, sorry, Gershon, if you had a continuation of what you were saying, I would go. If not, I just had another quick, comment slash question. So, Marty, obviously this is for, a company that has product, building inventory, so on and so forth.

635
00:56:11.210 –> 00:56:16.629
Dean Zambelli: But for sure, this is regardless of industry, regardless of the company, it’s always a healthy…

636
00:56:16.960 –> 00:56:32.000
Dean Zambelli: process to have. And one of the things that I’ve seen in, let’s say, service companies or elsewhere, is you might run into a situation from a liquidity perspective where, let’s just say at the beginning of the year.

637
00:56:32.120 –> 00:56:49.830
Dean Zambelli: When there was a hard push on collections of, invoices, by the end of the previous year, you then might start a year with a little bit lower cash, and at that point in time, you have a little bit higher compensation

638
00:56:50.060 –> 00:56:58.330
Dean Zambelli: and payroll tax, to your point, with, you know, FICA and so on and so forth kicking back in. But a lot of people, a lot of companies will then pay out bonuses and…

639
00:56:58.330 –> 00:56:59.220
Marty Latman: Exactly. So hard.

640
00:56:59.220 –> 00:57:16.009
Dean Zambelli: commissions and everything else. So, this, you know, the dynamic can happen any time during the year. It kind of depends on the business itself and the, and the cash flow, timing, to your point. But it’s certainly just a healthy process to get into, and…

641
00:57:16.040 –> 00:57:30.039
Dean Zambelli: can even be expanded to 13 weeks, so you kind of have a view of a whole quarter at any point in time, but I understand why you went with 6. But anyway, just an additional thought there that people should understand this is transparent to industry.

642
00:57:31.080 –> 00:57:41.510
Marty Latman: You’re right on target, Dean. This would use for-profit companies and not-for-profit companies, all different industries.

643
00:57:41.620 –> 00:57:46.300
Marty Latman: And yes, you know, year-end bonuses?

644
00:57:46.720 –> 00:57:57.159
Marty Latman: When you start looking at it, when will the year-end bonus be paid? If you have year-end bonuses, what will be the impact on that, on your cash flow?

645
00:57:57.370 –> 00:58:03.760
Marty Latman: What will the taxes look like, and what’s the impact on that? It’s…

646
00:58:04.090 –> 00:58:11.109
Marty Latman: Cash, as people have said many times, and I totally believe it, cash is totally king.

647
00:58:11.530 –> 00:58:13.650
Marty Latman: You know, you could be profitable.

648
00:58:13.920 –> 00:58:17.910
Marty Latman: But if you might not have the cash, to function.

649
00:58:18.540 –> 00:58:27.690
Marty Latman: So, as part of… The finance department on a regular basis.

650
00:58:28.570 –> 00:58:33.330
Marty Latman: the cash flow, to me, Should be done.

651
00:58:33.620 –> 00:58:35.110
Marty Latman: Regularly.

652
00:58:35.330 –> 00:58:43.189
Marty Latman: And looked at… at least weekly that I do it, okay, to keep track of where we’re going.

653
00:58:43.690 –> 00:58:48.330
Marty Latman: And at the same time, when you started forecasting out.

654
00:58:48.900 –> 00:58:53.220
Marty Latman: It really helps you, the more you do this.

655
00:58:54.120 –> 00:59:03.350
Marty Latman: to really manage your cash a lot better, and at the same time, you know, look at your operations, as I said earlier.

656
00:59:03.510 –> 00:59:06.590
Marty Latman: To see, hey, something’s not right over here.

657
00:59:06.710 –> 00:59:09.160
Marty Latman: There’s a bond like. How come my cash…

658
00:59:09.540 –> 00:59:14.399
Marty Latman: Coming in from my accounts receivable is not what it used to be.

659
00:59:15.410 –> 00:59:20.930
Marty Latman: Where are we missing things? So, yeah, use this. I recommend.

660
00:59:21.060 –> 00:59:29.159
Marty Latman: On any industry, Make it part of the, you know, the monthly close, at least, on your forecasting.

661
00:59:29.420 –> 00:59:36.000
Marty Latman: and really, you know, focus and know in detail

662
00:59:36.560 –> 00:59:39.460
Marty Latman: What’s going on on your… in your company?

663
00:59:44.820 –> 00:59:45.660
Gershon Morgulis: Alright.

664
00:59:46.130 –> 00:59:47.080
Marty Latman: Anybody else?

665
00:59:52.550 –> 01:00:03.140
Gershon Morgulis: We’re just about almost out of time, so I actually have one question, which I’ll ask, but you don’t have to answer it, because we’re out of time, but just something to think about is how does

666
01:00:03.410 –> 01:00:07.489
Gershon Morgulis: And if we have time after my outro, we can do this. But how does…

667
01:00:07.830 –> 01:00:19.619
Gershon Morgulis: like, we talk about cash, and we’re looking at, like, how much cash, minimum cash you want to have. How does having proper financing lined up tie into cash strategy? So does that…

668
01:00:19.970 –> 01:00:23.779
Gershon Morgulis: You know, that could create risks, it could create flexibility.

669
01:00:24.800 –> 01:00:30.009
Gershon Morgulis: But I need to make the outro, so let’s talk… let’s talk about that in a minute, after I announce.

670
01:00:30.540 –> 01:00:33.900
Gershon Morgulis: the poll. So, I’m supposed to announce the poll.

671
01:00:34.350 –> 01:00:53.739
Gershon Morgulis: which we have up now. If you can take a second to fill out the poll, that would be very helpful. I forgot to say at the outset that this is part of our business health series, where we cover topics about finance and other things. So, you know, we hope to cover marketing, HR, different things that are really important in the day-to-day. We also have another webinar

672
01:00:53.780 –> 01:01:01.120
Gershon Morgulis: coming up in, I believe, 2 weeks from today, but Tony, correct me if I’m wrong, 2 weeks from today, we will be covering

673
01:01:01.240 –> 01:01:12.960
Gershon Morgulis: R&D tax credits, and we’re very excited about that. Lots of growing companies have the opportunity to take advantage of that, and accountants who don’t offer that definitely want to come learn

674
01:01:14.210 –> 01:01:15.770
Gershon Morgulis: our excellent guests.

675
01:01:16.500 –> 01:01:17.980
Gershon Morgulis: And…

676
01:01:18.210 –> 01:01:24.210
Gershon Morgulis: Thank you. Everyone’s welcome to stay. We’re… if Maria has 2 minutes, we’ll talk about that last thing, but

677
01:01:25.550 –> 01:01:32.489
Gershon Morgulis: For anyone who needs to leave, thank you all for joining. We hope to have you back again. Thank you, Marty, for an excellent, excellent presentation.

678
01:01:34.020 –> 01:01:36.379
Gershon Morgulis: Now, Maria, do you have 2 more minutes? Should we talk about that?

679
01:01:36.380 –> 01:01:37.010
Marty Latman: Yep.

680
01:01:37.010 –> 01:01:41.930
Gershon Morgulis: Alright, see a teaser for that part. So, what do you think about that? Like, I’ve seen people who…

681
01:01:42.380 –> 01:01:43.720
Gershon Morgulis: we’ll say…

682
01:01:45.020 –> 01:01:54.789
Gershon Morgulis: I mean, I’ve seen insurance companies talk about, like, cash reserve, where if you have proper insurance, you don’t need cash reserves.

683
01:01:55.560 –> 01:02:10.219
Gershon Morgulis: or you don’t need as much cash reserves, because if something came up, you wouldn’t necessarily need to cover it from cash, you have the insurance. So, my thought is, if you have proper debt lined up, you might also be able to reduce your…

684
01:02:11.250 –> 01:02:19.179
Gershon Morgulis: necessary cash reserves, because you know you can rely on that. The flip side is, obviously, if you rely on that, you borrow money, you can’t afford to borrow.

685
01:02:19.970 –> 01:02:21.370
Gershon Morgulis: Lose the discipline.

686
01:02:21.370 –> 01:02:28.709
Marty Latman: I mean, it’s a juggling act, so to speak, okay? And this is why you really have to look at your operation

687
01:02:29.020 –> 01:02:30.910
Marty Latman: To know what’s going on.

688
01:02:31.290 –> 01:02:32.459
Gershon Morgulis: And get a good CFO.

689
01:02:33.020 –> 01:02:40.920
Marty Latman: Yeah, I mean, I’ll give you a… in banks… lenders…

690
01:02:41.170 –> 01:02:47.229
Marty Latman: What’s on their mind? They always… they’re willing to lend as long as they feel that they’re gonna get paid.

691
01:02:47.740 –> 01:02:53.900
Marty Latman: They’re gonna pay… be paid back. And they look at, you know, your cash flow also.

692
01:02:55.010 –> 01:02:57.840
Marty Latman: When you go to them for financing.

693
01:02:58.150 –> 01:03:05.300
Marty Latman: And so, as a result of it, you know, my whole thing is, you know, work with your financial institution.

694
01:03:05.520 –> 01:03:07.429
Marty Latman: Okay, as you go through this…

695
01:03:07.810 –> 01:03:11.489
Marty Latman: And see, alright, let them know what’s going on.

696
01:03:13.500 –> 01:03:18.680
Marty Latman: I had a situation with one of my… companies that I worked at.

697
01:03:19.100 –> 01:03:24.900
Marty Latman: That we had, on… on our bank, covenants…

698
01:03:25.480 –> 01:03:36.960
Marty Latman: We had a covenant relating to the percentage of inventory That we could have, for the company.

699
01:03:38.410 –> 01:03:42.999
Marty Latman: Well, this was around the Beijing Olympics.

700
01:03:43.400 –> 01:03:49.020
Marty Latman: And we were having goods manufactured. I had 28 manufacturing plants in China.

701
01:03:49.560 –> 01:03:55.020
Marty Latman: And I was told… about 2 months before the Olympics.

702
01:03:55.220 –> 01:04:06.309
Marty Latman: that the Chinese government have informed the manufacturing plants that they were going to have to shut down

703
01:04:06.870 –> 01:04:11.769
Marty Latman: the month before the Olympics, Because of the pollution.

704
01:04:13.620 –> 01:04:15.530
Gershon Morgulis: So I’m looking at that…

705
01:04:16.910 –> 01:04:23.559
Marty Latman: Where you thought in calculating how much inventory Would we need…

706
01:04:24.190 –> 01:04:26.489
Marty Latman: If we’re not getting it for a whole month.

707
01:04:27.920 –> 01:04:32.460
Marty Latman: And so we made our calculations, and then we looked at it and we said, you know.

708
01:04:33.160 –> 01:04:36.100
Marty Latman: How many other companies are doing what we’re doing?

709
01:04:37.000 –> 01:04:39.529
Marty Latman: And we said, let’s add more inventory.

710
01:04:40.490 –> 01:04:42.929
Marty Latman: And so, as a result of it, we came up with

711
01:04:43.740 –> 01:04:55.750
Marty Latman: higher inventory purchases that we felt we needed. But to do that, okay, we were out of sync on our covenants to the bank. We would have been if we

712
01:04:55.880 –> 01:04:58.230
Marty Latman: Ordered the goods.

713
01:04:58.500 –> 01:05:02.010
Marty Latman: And as a result of it, what we’ve done,

714
01:05:02.780 –> 01:05:05.619
Marty Latman: I prepared cash flows for the bank.

715
01:05:06.530 –> 01:05:10.949
Marty Latman: We’ve… Always been communicating on what our needs were.

716
01:05:11.300 –> 01:05:16.229
Marty Latman: And I explained to them, And showed them on the cash flow.

717
01:05:16.720 –> 01:05:20.489
Marty Latman: how… We would need the money initially.

718
01:05:21.040 –> 01:05:27.369
Marty Latman: And when we would be able to pay back and get back into the covenants that we had.

719
01:05:28.480 –> 01:05:34.189
Marty Latman: And they looked at it, and they agreed with us, And we did that.

720
01:05:35.100 –> 01:05:42.849
Marty Latman: And not only did we… successfully, Navigate this period of time.

721
01:05:43.650 –> 01:05:48.680
Marty Latman: But we had a lot of this inventory that our competitors did not have.

722
01:05:49.750 –> 01:05:54.090
Marty Latman: And as a result of our sales, Went up.

723
01:05:54.640 –> 01:05:56.510
Marty Latman: Our profitability went up.

724
01:05:57.130 –> 01:06:02.699
Marty Latman: We gained new customers as a result of it, because we had the inventory.

725
01:06:03.150 –> 01:06:05.709
Marty Latman: We satisfied a bank.

726
01:06:05.880 –> 01:06:10.500
Marty Latman: As we paid back the money that we said we would based upon our cash flow.

727
01:06:10.960 –> 01:06:14.400
Marty Latman: And it’s just a matter of being able to show them

728
01:06:15.490 –> 01:06:20.799
Marty Latman: That this is really what was going on, and how the cash… would be some…

729
01:06:21.000 –> 01:06:32.739
Marty Latman: spent, and then submitted back to them, the repayment. And that really shows how important the cash flow is to do your forecasting.

730
01:06:35.710 –> 01:06:36.510
Gershon Morgulis: Yeah.

731
01:06:37.390 –> 01:06:54.430
Gershon Morgulis: Well, thank you. I think you did a great job. This was, interesting. I already… I actually got… we have someone who used to be a CFO here, one of our former CFOs, who came on to join today, and said, this sounds exactly like me, and everything I tell my clients, this is great, can you send me a copy of the recording?

732
01:06:54.530 –> 01:06:55.580
Gershon Morgulis: So.

733
01:06:57.490 –> 01:07:02.599
Marty Latman: Always good to help. It’s an important thing. This is a service that we provide.

734
01:07:02.750 –> 01:07:04.310
Marty Latman: to our clients.

735
01:07:04.660 –> 01:07:13.030
Marty Latman: Either on a fractional basis, on a full-time basis, to help them understand What that business…

736
01:07:13.240 –> 01:07:20.889
Marty Latman: Currently is doing, and how to really elevate In their business going forward.