SMB leaders discuss what they need to improve cash flow forecasting and scenario planning
Centime and banking partner FNBO recently hosted a lively and informative session on common cash flow mistakes business make — and how to avoid them.
As part of First National Bank of Omaha’s Business Insights webinar series, which draws an audience of the bank’s business banking clients, Centime founder and CEO BC Krishna led a conversation about mistakes businesses make in managing cash flows, how to reframe the problem, and ways to generate innovative solutions. Matt Meyer of FNBO introduced the panel, which included Centime Early Access clients Dorothy Kolb, who founded and runs the fractional CFO firm dk east associates, and Todd Murphy, CEO of media monitoring firm Universal Information Services.
After working as a CPA in a high-level corporate environment, and then later picking up bookkeeping work on a freelance basis when her children were small, Kolb realized she could apply her strategic skills in cash flow management to small and midsized business clients. She shifted from looking back to looking forward on their behalf, taking on an advisory role to help them make the most of their money as they grew.
“My background is pretty broad as far as what kind of companies I'm used to working with. So I've seen cash flow from many angles,” Kolb noted before proceeding to recount a tale that would make any business owner shudder — realizing late on a Friday night that your partner had made a large spend without your knowledge that meant you would not be able to cover payroll on Monday morning.
“Obviously the last thing you want is for your employees to not feel valued. And one of the ways to do that is to not pay them,” Kolb said, recounting the entire team’s mounting panic. At which point Murphy, as an owner-operator chimed in that you also risk going to prison — hardly a small consequence for cash flow mismanagement.
Kolb reassured attendees that that particular business managed to secure an infusion of cash over the weekend and the company’s employees received their checks on time. (Kolb also noted, importantly, that it was a new client for her at the time who had yet to benefit from her expertise in financial planning.) But it was a stark reminder that planning, forecasting and using credit in a smart way can smooth operations and allow leaders to focus on priorities that lead to stability and growth.
Murphy was up next, and shared that his father, who preceded him as CEO at Universal Information Services, always emphasized that missing payroll was not an option, so he has never found himself in the position of Kolb’s client. However, he did recount a story from the late 1990s when he faced the kind of timing issue that can derail cash flow.
The company was making a major investment in upgrading its interface for customers, which translated into paying a team of software developers over a period of 12 months. “In my business that monthly check was significant, and I'm not so proud to admit that there were a couple timing errors when I paid that amount,” Murphy recalled.
“I've made a couple errors based on timing. My income is such that I can cover it. I just have to get smarter at watching my cash flow. If I had had the ability before starting that payment to predict when my money was going to come in, when my receivables would be highest I could make that payment — and not make that payment to the developer just after the credit card had been paid. Or just before payroll was due,” he continued.
With access to better forecasting, Murphy said, “I wouldn't have had to learn these lessons the hard way, but I guess if there is any strength of mine, I am teachable.”
Thanking Murphy for sharing his story, Krishna emphasized: “Everybody's teachable. Everybody's got the sort of humility to be able to admit that we can all do better.” And as Kolb similarly noted in the course of the conversation, one way to do better is to rely on people and services that can bolster areas where one’s skills might not be as strong.
Krishna addressed the timing issue in managing cash. Often accounts payable and accounts receivable are managed separately, or businesses have only a loose sense of when customers will actually pay invoices — since it’s rarely on the due date. Matching when money comes in and when it goes out is a major challenge for many businesses, one that artificial intelligence and machine learning can help solve by performing a predictive function. Technology also comes in to synthesize and analyze data from a variety of sources that rely on one another, but often are not connected in a business’ finance department, from the General Ledger to actual bank balances to lines of credit.
He said of Murphy, “You talked about how much cash you have, how long it's going to last, having a forecast. You've waxed eloquent about the fact that it's all about the timing of payables and receivables. You talked about how you drew on your credit when you needed it. Those four things in my mind are the things that sort of all need to be brought together in order to more effectively, systematically, consistently manage your cash flow.” Centime was developed to solve this complex web of problems in a way that makes cash flow management simple and straightforward for both accounting professionals and owner operators who want to be more forward-looking and proactive in managing their cash.
Meyer chimed in on how an innovative fintech solution can fit in with a bank’s goals in serving its business clients. “As a banker, I was born cynical and pessimistic and annoyingly detail-oriented, and working with entrepreneurs helps balance all that out. The relationship between banks and fintechs can be somewhat similar. Traditionally, we think of banks as being large institutions with access to lots of resources, being very stable, perhaps more conservative, but for good reason. When you couple those traits with the entrepreneurial spirit of fintechs, it can lead to really incredible outcomes,” he said.
“I'm an entrepreneur; I've started four companies and three of them have been fintech companies. There's a media-driven trope that fintechs and banks are adversarial, and that fintechs are out to replace banks,” Krishna said.
“But the reality is that it's a lot more like a relationship where partners can work together to solve real-world problems that small and mid-sized businesses and customers in general face. And that's why we’re here.”
Watch the full webinar here: