Juggling Cash (December 2011)

There is no surer symptom of an unhealthy business than one that is forced to juggle cash. Quite simply, this means they are running so tight on cash every day that they are making conscious decisions as to who does and does not get paid based upon daily cash receipts. This process is incredibly time consuming, prone to error, stressful for those working the process and adds absolutely no long term value to the business. That said, I see businesses who have allowed themselves to get into this position on a regular basis. For perspective, a healthy business pays approved invoices within terms because it has the resources to do so. The process is simple and quick.

The problem stems from a business that is undercapitalized due to either a lack of equity capital put into the business, too much money pulled out when times were good leaving little reserve capacity, or a history of sustained losses that have eroded the equity capital base and pushed up borrowing. Frequently, the company is now at its debt limits and is forced to “juggle cash” in order to make payroll and keep key vendors happy. This is otherwise known as robbing Peter to pay Paul or in more recent times, using Visa to pay MasterCard.

This process is incredibly expensive and takes a toll on the organization’s psyche. I have seen very capable controllers spend almost all of their time on this process while being forced to ignore cost savings opportunities and efficiency initiatives that would help in the longer term. They are moving cash between various accounts and entities, trying to collect from customer a few days sooner and stringing out vendors as long as possible. Costs mount in terms of late fees, credit card charges, interest, penalties and the like but these pale in comparison to the real cost which is staff time.

Vendors become less responsive and when they are healthy enough significantly tighten terms and even fire the company (refusing to do business with someone who is slow pay). Unhealthy vendors will continue to work with you “hoping” that things will turn around as they feel they need to keep recording revenue even when payments are late. Usually, this weakens their financial position, too. At times, you can have a vendor help you through this period but that requires transparency and honoring commitments when you make them. I’ve worked in businesses healthy enough to help a struggling customer and it can be a win-win. I have also fired customers who were high touch, slow pay and generally unprofitable. Frankly, it’s a great feeling to take that step.

If you find yourself juggling cash, I would encourage you to step back and try to understand the root causes. Look at your recent profitability and capitalization. But both of those must be honest assessments.

Looking at profitability requires a solid balance sheet review. Is your inventory correctly valued? Are all of your receivables collectable or is there a proper reserve for collection issues. Are all of your liabilities recorded? Does depreciation allow for capital replacement? Have you ignored maintenance issues so long that there is a “ticking time bomb” out there waiting to go off?

Your banker will welcome a conversation on your capital structure and the appropriate amount of leverage for a company of your size, life cycle, and industry.

If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to

your cash is flowing. know where.®
Ken Homza
Copyright @ 2011 Homza Consulting, Inc.

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