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Increased cash flow by $500,000 a year!  

Increased cash flow by $500,000 a year!  

 

Summary 

The client was struggling to manage their cash flow, risking their ability to meet financial obligations, and potentially threatening their business’s survival.   

 

To address the issue, the client engaged our team as it had the desired small business expertise to conduct a comprehensive review of the issue, the accounting records, financial statements, customer, and supplier invoice processes.   

 

The review included contracts, time entry submissions, invoice issuance triggers, supplier terms, supplier terms, invoice processing timelines, customer onboarding processes, financial turnover rates, and expense management.   

 

  

What we did :

Customer Review  

We reviewed customer contracts, time entry submissions by staff (timing of submissions, validation of hours, etc), how often invoices were issued to customers and what triggered an invoice submission.  

Supplier Review  

We reviewed the supplier terms, as well as how often invoices were entered for payment, how long it took to approve the invoice and how long it took to pay it

.  

Process Review 

We reviewed the process for onboarding customers, time submission and approval, invoice creation and submission (customer) and process for initiating, entering, approving, and paying invoices (supplier).  

Financial Data Review 

We reviewed the financial data (time between the time the work was completed to the time it took to get payment from the customer – turnover rate, time between the time the supplier product or service was approved for use to how long it took to pay the supplier – turnover rate). We also reviewed the mandated expenses versus the variable expenses as compared to the revenue (contribution margin, gross margin).  

  

Summary of problem 

What we discovered was that the time sheets were submitted when the employee got around to it, this delayed the ability of the accounting department to bill work in a timely manner. Most contracts had a period that time had to be billed by. Additionally, we discovered that supplier products or services were being initiated by everyone in the company. Allowing anyone to initiate a cost reduced the organization’s ability to manage costs.  

  

Recommendation 

Our recommended solution was  

  1. to institute a weekly time submission,  

  2. to migrate from keeping time manually to a time system. This time was then able to be billed within the parameters of the contract.  

  3. if a payment from a customer was coming due but was not paid, the accounting group created an automated reminder notice for the customer.  

  4. to change who could initiate an expense. We recommended that only the accounting department and management team could initiate and approve expenses. 

  

Resolution 

We collaborated with the client, and we saw that after three months, the customer billing and collections had gone up significantly, while costs were reduced by centralizing the purchasing process to a smaller group of individuals.  

  

When we extrapolated the increase in sales and decrease in expenses over another three quarters, we noted that the client should increase their cash flow by approximately $500,000 per year.  

 

Ultimately, this case study underscores the essential role of meticulous financial management and process optimization in driving substantial improvements in cash flow and overall financial performance. It highlights the value of strategic interventions, tailored to address specific pain points within an organization's financial operations, and the potential for significant, sustained benefits in terms of increased cash flow and overall financial stability.  

Book a call with us today to explore how we can help you achieve positive results! 

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