5 Lessons in Cash Management from a CFO

By Anne Samak de la Cerda

When I joined FLG in 2020, I brought 20+ years of experience as a finance executive and CFO to the firm. My current focus is technology businesses, including B2B Software and Consumer platforms as well as Healthcare and Life Sciences. I help teams drive strategies as they plan for growth, fundraising, M&A, restructuring, scaling business operations as well as providing board advisory support.

Over the course of my career as a Chief Financial Officer, I have faced the challenge of cash management at almost every company I have worked with, ranging from high-growth emerging companies to larger, more established enterprises restructuring and making acquisitions. These enlightening opportunities have shown me five important lessons when balancing cashflow needs and uses, regardless of sector, stage of growth, or level of complexity of business operations:

• Don’t Just Plan for Success
• Always Develop a 13-week Cash Forecast
• Understand All Working Capital Requirements
• Raise Cash Well in Advance of Cash Needs
• Leverage Multiple Sources for Cash Financing

Don’t Just Plan for Success

As a CFO, you always need to plan for several different scenarios, from worst case to best case and many in between. You need to be proactive and be ready to act upon each one as actuals come through. At one of my clients, I learned this lesson the hard way, having been brought in after the previous CFO had forecast too rosy a scenario when it came to cash availability. Ultimately, I was able to work with the management team to develop a better set of “early-warning” signposts to guide decision making about investments, from hiring to inventory.

Always Develop a 13-Week Cash Forecast

A 13-week continually updated cash forecast is one of my “go-to” tools as a CFO. This couldn’t be more important now as we see the economy cooling down. This simple tool, updated weekly, uses weekly cash inflows and outflows to forecast your company’s net cash usage. I send it to the CEO every Monday morning so that we are always on the same page when it comes to sources and uses of funds. At one of my life-science clients, it took us almost four months to get from a Terms Sheet to a closed deal ($75M Series B). But thanks to my 13-Week Cash Forecast, I could continue to provide both the board and management team with full visibility to our cash position. This was key because we had an agreed to “Cash Zero” threshold triggering Convertible Debt from existing investors.

Understand All Your Working Capital Requirements 

This fourth CFO lesson around cash management is self-evident but so important. You need to fully understand what is burning cash so you can better manage the timing of your receipts and payments. As a CFO, you should always resist the urge to collect payments faster or pay late! Frankly, this type of response just hurts your business relationships and might even be considered unethical. Your vendors and suppliers are likely trying to conserve cash too, so reducing their receivables won’t engender positive vibes! You are better off working with them to extend to net 45 or 60 day terms on payment schedules.  This way cash flows are more predictable all the way round. My rule of thumb? Communication and predictability lead to better cash management.

Raise Cash Well in Advance of Cash Needs

Raising cash financing always takes longer than you expected and for reasons often beyond your control. Add to this the fact that having less cash on hand than you need is a major “faux pas” in front of investors & lenders and undercuts your credibility as a CFO. But remember that your company’s “cash out date” is not equivalent to zero in the bank; you just want to avoid being in the “zone of insolvency.” So, your tax and payroll liabilities always need to be paid up in full as well as any obligations from existing loans. You then need to be able to demonstrate that you can meet your cash obligations at any time for at least the next 12 months (the “going concern” test). Just make sure to pad your cash financing milestones in case your fundraising encounters a longer timeframe than you expect.

Leverage Multiple Sources for Cash Financing

When raising cash, experienced CFOs know to always draw down as much cash as you can from any credit facilities you have available – while leaving some room for covenant compliance (if you have any). If you are tight on cash, the right time to ask your banks for covenant relief is after you draw down on your lines of credit.  A higher outstanding loan balance is leverage for you with banking partners.  No banker wants a default.  You just need to show that you can meet interest and principal payments – that’s really what matters to them. And you should always look for every opportunity to raise cash, tapping into multiple sources of financing.

For example, after raising a $30M Series B for one of my clients, I obtained several term sheets for an additional $10M venture debt loan facility.  That’s not out of the ordinary if you had already raised a round with a group of reputable VC firms. But on top of the Series B and venture debt, I was able to strike a partnership deal that alleviated a large percentage of accounts receivables for one of their lines of business.

These five strategies for better cash management are time-tested and timeless. But they are particularly germane in times like these when markets are tight. If you need cash management talent you’ve landed in the right place. FLG’s CFOs are happy to help your company raise working capital to fund your needs.