My previous organization, let’s call them ABC Health, was very “cash poor”. So cash poor, that when it came time to submit the payroll, every week the CFO would say to hold off in order to transfer funds from their personal bank accounts to the business accounts. “One of the largest expenses in many businesses is payroll, and people want to be paid in cash” (Berman et al., 2008, p.115). As the payroll coordinator, I was constantly hearing the employees being upset that their checks were delayed due to our timing. It was extremely inconsistent because it was whenever the owner had the funds to pay the employees. The company had a ton of money in assets but was unable to maintain its liquid assets in cash. This became such a problem that even when it came time for bonuses, we had to pay half of the alphabet one month and the latter half another.
Some options ABC Health could have done to achieve a more favorable cash position could be to find the right kind of expertise and make better timing decisions (Berman et al., 2008, p. 122). The current CFO was very inexperienced and was a relative of the company’s owners. Therefore, he was not the best person to be calling the shots. He could have had an outside council to help advise him on his investments and assist with additional financing. For example, they could have advised to take out a loan for the cash, adjust the inventory, or suggest a new billing system for the collection of invoices. However, it’s not only knowing what decisions to make, but also when to make them. Which, unfortunately, the CFO also wasn’t aware of. “Informed decisions on when to take an action can increase a company’s effectiveness” (Berman et al., 2008, p. 122). In being able to properly assess the balance sheet, income statements, and cash flow statements the CFO could have spotted the decrease in cash weeks before the payroll was due. “The shorter the cash flow cycle of your business, the more money you will have on hand to pay expenses and payables and start the cycle once again” (Paychex WORK, 2021, p. 12). Even if he didn’t know how to do it, an expert could have assisted with creating frequent cash flow cycles. Thus, creating more cash from the operations. In summary, there were a lot of options the company could have taken, but because they did not consult outside counsel, they actually had to sell the business in the end. By being aware of the situations that can occur, and when they can occur, the company could have obtained a competitive advantage and a more favorable cash position.
Berman, K., Knight, J., & Case, J. (2008). Financial Intelligence for Hr professionals. Harvard Business Review Press.
Paychex WORK. (2021, August 24). How to manage cash flow problems. Paychex WORK. Retrieved February 1, 2023, from https://www.paychex.com/articles/finance/how-to-mitigate-cash-flow-problems