Never Run Out of CASH - Helping You Take Control of Your Cash : Philip Campbell

"Look Inside the Book"

Excerpt from

Chapter 9

The Peace of Mind Schedule Is Born

__________________________

“Necessity is the Mother of Invention.”

It was a beautiful warm evening in 1994. The CEO and I had just signed the papers on a deal that generated a profit of $3.5 million dollars for the company. It was the most money the company had ever made.

We sat on the patio of the restaurant to toast the occasion. We were thrilled to have finally closed the deal. We felt so proud to have closed a deal that made so much money for the company. We also felt a sense of relief that it was finally done.

After our toast, we reflected on the four years that led up to this huge profit.

One thing was certain, there was a time in the early days of the company when we didn’t think things were going to work out at all.

I would like to share with you the story of how the Peace of Mind schedule came to life.

The events that played out during this four-year period made a huge difference in my career and taught me the proper way to manage the cash flow of a business.

I will share with you how this schedule helped our company get through an extremely difficult cash flow crunch and create the most profitable deal in our company’s history.

Is Our Cash Problem Going to Get Worse?

Four years before, we had bought a division of a public company.

Cash was tight from day one. The deal was financed with a good bit of debt, a large portion of which was scheduled to be paid off within the first two years.

I was still new to the role of being the financial officer inside a company. I had spent the previous seven years working in CPA firms. The first three-and-a-half years I worked for a local public accounting firm. The next three-and-a-half years I spent with one of the large international accounting firms.

Being new to my financial duties, I found myself a bit uneasy with the cash management process in general. I had a budget, but that didn’t really help much when it came down to figuring out which bills we could pay. It also didn’t help much when I tried to figure out if our cash flow problems were temporary or not.

I relied primarily on the budget and the income statement as my guide. It never got so bad that I was forced to use a different tool. But I knew in that first year that I was flying blind with regard to cash flow. I knew I didn’t really have the cash flow under control.

The nagging question that was always in the back of my mind was – "Is this problem going to get worse?"

We were forced to pay vendor invoices late. We had rescheduled some of our debt obligations with our primary lender in order to avoid defaulting on the debt.

After the first year, the cash flow problem got worse. Sales were off a bit and more of the debt was scheduled to be paid off. We were routinely holding invoices from vendors and the invoices we were paying were being paid late.

I could see that the next payment due on the debt could not be paid. That was the big wake-up call.

Late Payments Bring Impatience

While our lender had been working with us through our cash flow problems, they were becoming impatient. Worse, they were beginning to question whether the management team really had the cash flow of the business under control.

We needed new payment terms and a new payment structure so we could pay the debt and not have to keep going back to them with excuses about how we were unable to meet our commitments.

That’s the point where I said, “Not only do I need something better for me and for the rest of our management team, I need something to help me clearly show our lender what’s going on financially.” At this point, I was getting tired of failing to meet our financial commitments and worrying about whether we had a handle on our cash flow.

It was clear to me we needed to do something quick. We had to renegotiate the terms of the debt with the lender or we would default on the loan. And default could mean the end of the company.

I summarized what needed to be accomplished as follows:

I needed a schedule that would help me figure out exactly what we could afford to pay on the debt. I knew we could not afford to pay the debt as it was currently coming due but I didn’t know exactly what we could afford.

I needed a way to present a clear and easy to understand picture of the financial situation we were in to the lender. I thought that if they had a clear view of the finances, they would be more likely to go along with our plan.

The financial picture needed to show clearly how the cash flow of the company tied back to the income statement. Specifically, it needed to show how the cash flow tied back to the primary financial measure we used to track performance. Our Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) was the primary performance measure we used internally with our board of directors, with our shareholders, and our lenders. All of our budgets and actual results were focused on this number. The financial picture needed to clearly show how this number affected the cash flow of the company because everyone was so familiar with it.

The financial picture needed to show how the timing of recording our revenues (when we billed our customers) differed from the timing of when we collected those revenues (when we received the cash). The business was highly seasonal. Because our financial statements recorded revenues on the accrual basis of accounting, certain seasonally strong months showed much higher revenues than other months. However, the cash was collected 30 to 90 days after the revenue was “earned” and recorded as revenue in our income statement. Our lender was always trying to get us to make a larger payment in the seasonally higher sales months. What they didn’t understand was that the cash from those months did not flow into the company immediately. We could make higher payments in certain months, but not in the months they thought we should make them.

I needed to present the other non-income statement components of the cash flow in a way that clearly showed what had happened to our cash balance and what we projected was going to happen to our cash balance. It was important to establish that we were in control of our cash flow, even though we did not have as much cash as we would have liked (or they would have liked us to have).

It was very important that when we went to the lender and renegotiated the debt, that we did not create a new payment schedule that we couldn’t honor. Our credibility would be destroyed if we did that again.

What I ended up with I now call the Peace of Mind schedule. Looking back on it now, I ask myself – "How come I didn’t come up with this schedule sooner?" I could have saved myself, and many other people associated with the company, a great deal of time and worry.

It Makes Perfect Sense to Me!

I knew the schedule was a winner when the Vice President of the lender said to me, “This schedule is perfect. I can tell exactly what’s going on with the cash. It makes perfect sense to me.”

He said this at the end of the meeting in our offices when we presented our proposed debt restructuring. He could see clearly where the cash had gone and clearly where we expected it to go over the next twelve months.

The schedule was what the lender needed in order to make his decision about our proposal. He was now confident that he understood the cash flows and that the company's management was in control of the cash flow.

They gave us the new payment terms we needed.

From then on, I provided our lender with the Peace of Mind schedule quarterly. They loved it and said they planned to have all their other companies start using it to manage and present their cash flow.

So how did we end up creating a $3.5 million profit from this lender, you ask?

Two years later, the lender’s parent company wanted to get out of the business of lending money. Consequently, the subsidiary, our lender, was put up for sale.

Because they wanted to get out of the business of making loans, the lender was interested in finding creative ways to get their existing loans paid off early. Because they understood the cash flow of our company, they offered us a significant discount to pay them off.

We were able to take advantage of their generous offer and when the deal was completed, we created a profit of $3.5 million.

This incredible deal would never have been possible if our lender hadn’t felt comfortable that they understood the cash flow of our business.

The Peace of Mind schedule presented the cash flow of the company in a way that made it clear to them where the money was going and how long it would take us to pay the loan off.

It really is the perfect tool for showing what's going on with a company's cash balance. Chapter 10 will present the schedule in a way that is simple to create and easy to understand (including giving you a way to download a pre-formatted Peace of Mind schedule FREE).

Click here to go back to the Table of Contents of the book.

A Money Back Guarantee That
Eliminates Your Risk.

Guarantee: All our products come with a RISK FREE, no-questions asked, 90 day money back guarantee. If for any reason, or at any time within 90 days of purchase, you decide this information isn’t right for you, I'll refund 100% of your purchase price.

All the risk is on me! These products deliver value to you or you get your money back - 100% guaranteed.

I'm that confident it will transform the way you manage your business.

The paperback is ONLY $16.95
(or ONLY $14.95 for the eBook you can download immediately!)

Call 1 800 247 6553 to order by phone.
(we are available 24 hours a day, 7 days a week)

Get it NOW.