Are your cash flow tools recession ready?

Mullins, J (2020) Are your cash flow tools recession ready? Business Horizons, 63 (6). pp. 693-704. ISSN 0007-6813

Abstract

In good times like those most businesses have enjoyed for the past decade, managers and entrepreneurs typically watch their income statements with glee, as year-to-year performance gains fatten their bonus pots and dividend payouts. Most pay little rigorous attention to what’s between the top line and the bottom line of the income statement, however. Few, in my experience, give more than a cursory nod to the balance sheet. When the next recession hits, these same people will find themselves having sailed too close to the wind, with cash running out and a dearth of tools to help them weather the storm and understand what has gone wrong. But it need not be so, for there are four simple tools to help any manager or entrepreneur answer these important questions:

- Where is cash going in my business, and where is it coming from?
- To what extent are my profit margins improving or declining, and why?
- To what extent am I effectively managing the cash flow relationships with my customers and my suppliers?
- What, if anything, can I do to better manage the cash that flows into and out of my business?

This article puts four such tools in one’s managerial toolkit.