Cash Flow Management Tools for Small Businesses

What this video covers

This SBDC webinar introduces Mike Milan ('Cash Flow Mike') to teach the 'Fast Money Formula' for calculating working capital needs and identifying cash shortages. Milan explains how to compute a company's 'Financial Gap' in days using inventory days, accounts receivable days, and accounts payable days (or payroll frequency for service businesses). The first 23 minutes cover local Bakersfield SBDC administrative announcements, grant deadlines, and regional updates, after which the cash flow calculation framework begins.

Best for: Businesses selling physical inventory on credit terms; Service businesses carrying employee payroll while awaiting invoice payments; Owners applying for a bank line of credit who need to justify the exact dollar amount needed; Not applicable to businesses that collect 100% upfront cash with zero inventory and no payroll lag

Chapters

1. 00:00 Introduction and SBDC Announcements
2. 06:30 Corporate Transparency Act Overview
3. 09:28 Capital Corridor & Small Business Credit Survey
4. 15:28 Local Business Tribute: Jim Arnold (Triassic Vineyards)
5. 22:43 Guest Introduction: Mike Milan
6. 26:40 The Fast Money Formula Overview
7. 28:53 Calculating Working Capital (What You Have)
8. 31:09 The 3 Levers & Calculating the Financial Gap
9. 36:31 Calculating Cash Need for Inventory Businesses
10. 40:08 Adjusting Levers to Eliminate Cash Shortages
11. 42:13 Applying the Formula to Service Businesses
12. 45:36 Fast Money Formula Worksheet & App Demo
13. 48:10 Case Study: Alden Mills and The Perfect Pushup
14. 50:48 Q&A and SBDC Wrap-up

Key points

• 27:51 The Financial Gap is the number of days a business operates without incoming cash to cover outgoing liabilities.
• 32:26 In financial analysis, operational cycle velocity is measured in days rather than miles per hour.
• 34:42 Financial Gap days equals Inventory Days plus Accounts Receivable Days minus Accounts Payable Days.
• 37:55 Arriving at a bank without a specific, calculated line of credit request weakens creditworthiness under the 'Character' evaluation.
• 44:15 Reducing inventory holding time from 90 to 60 days can completely eliminate a working capital shortfall without taking out new debt.

Turn it into a project: Calculate and Close Your Company's Financial Gap

Calculates the exact amount of working capital a business needs to cover operational timing lags between payables and receivables, preventing growth-induced cash flow crises.

Phase 1: Calculate Current Working Capital

1. 29:20 Extract Current Assets and Current Liabilities from your balance sheet
2. 30:26 Subtract Current Liabilities from Current Assets to find existing Working Capital

Phase 2: Measure Operating Cycle Days

1. 35:06 Identify Inventory holding days, Accounts Receivable collection days, and Accounts Payable payment days
2. 35:48 Compute Financial Gap days: (Inventory Days + AR Days) - AP Days

Phase 3: Determine Cash Need and Address Shortages

1. 36:44 Divide annual COGS (or annual payroll for service companies) by 365 to establish average daily spend
2. 37:12 Multiply daily spend by Financial Gap days to calculate total Working Capital needed
3. 37:34 Compare needed capital against existing capital to quantify cash surplus or shortage
4. 40:12 Model reductions in inventory days or AR collection times to shrink the gap before borrowing

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