Cash flow: managing capital in a turbulent market: with today's volatile economy, maintaining effective cash flow and managing working capital have taken on greater importance in businesses of all sizes. Add in restricted liquidity and tightened credit markets, and a once rainy day has become the perfect storm. Clients and customers look to CPAs to help them weather this storm. Is your umbrella big enough?

Author:Finan, Kelley
Position:Cover story


While managing working capital and cash flow have always been fundamental to a CPA's responsibilities, the current environment requires new ways of thinking and acting. Clearer cash flow strategies may need to be developed. More stringent processes for managing payables and receivables may need to be implemented. And more creativity may be required when working with customers, lenders, suppliers and vendors who are also seeking shelter from the storm.

The following best practices, related to the "four Cs" of working capital--cash flow, credit, communications, and capitalizing on opportunities--can help you and your clients put up the umbrella.


While cash flow is critical at any time, carefully managing credit, inventory, accounts receivable and payable is even more important when the economy is turbulent. As Sandy Miller, CPA, OSCPA member and director of accounting and external reporting for Jo-Ann Stores Inc., of Hudson, says: "Today, companies need to be cash cows."

Miller says that while Wall Street has traditionally admonished companies with too much cash, today's view is that companies that have issued too much public debt or have spent too deeply on acquisitions are negatively overextended. With the current lending crisis, cash-rich companies are becoming more attractive.

Becoming cash-rich requires a vigilant approach to managing cash flow. The old way of doing business is just that. As bankers, vendors, suppliers and customers are also trying to survive, your company's relationships, processes and even positioning may need to change.

"Companies need to get creative. They need to look at their product offerings and get rid of slow-moving or unprofitable products," says Miller. "Some companies may even need to reposition themselves to increase sales and enlarge their customer base."

Brian Marita, CPA, OSCPA member and partner at Ciuni & Panichi in Cleveland, agrees. "Banks are not financing a lot of inventory right now. Companies need to focus on realistic inventory levels and understand the extra costs of carrying too much inventory," he says.

Relationships and processes also may need to change as well when times are rough. Miller offers a few tips on internal controls: "Don't pay payables early, but pay on time. Understand that vendors will be scrutinizing who they sell too as well. You want to be in good standing with them, but hang on to your cash as long possible."

"Also look at your customers and their...

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