Finance

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Saturday, July 31, 2004

Let the cash flow
with Gina Bienkowski
Q. Our company has been doing a great job growing revenues, but our cashflow is getting worse. How long will it take for cashflow to support our growth?

A. In a capital intensive industry, it’s not unusual to experience cashflow difficulty during periods of growth. If your cashflow squeeze is caused by equipment purchases, help is on the way. Once the rental reimbursement on equipment exceeds the cost, the continuing rental reimbursement will help ease your cashflow pressure.

However, be sure other areas of your operation aren’t negatively impacting your cashflow. Start with payroll expense. Hire employees strategically to support revenue growth and control payroll expenses by monitoring your revenue per employee each month.

Another area to look at is your accounts receivable. Although you should expect the dollars to grow, the length of time to collect those dollars should remain the same or go down. To monitor the collection time, calculate your DSO at the end of each month. To do this, calculate your average daily revenue (ADR) by dividing net revenue for the most current three months by 90 (days). Then, divide the current net accounts receivable by the ADR just calculated. If the number is higher than the number calculated last month, your collection time is growing. Make sure your company is getting the invoices out in a timely manner, or check to see if a payor is slowing down payments.

Monitoring the entire operation, not just revenue, is critical to managing your cashflow.

Gina Bienkowski is v.p. of Ultimate Resource. She can be reached at 610-353-1321.

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