Sébastien Roy
Partner | CPA, CA, CBV, M.Sc. | Financial advisory

Updated at September 8, 2020

Managing cash flows is always a key concern for business leaders. Companies need capital to meet their financial obligations, such as payroll, accounts payable, loan repayments and business investments.

Having sufficient cash on hand is more important than ever to ensure the sustainability of the organisation. Your business’ survival depends on it. In turbulent times, your cash budget can come to the rescue by preventing critical operations from being hard hit.

That’s why it’s crucial for all companies to develop a cash budget and have a clear understanding of its liquidities.
Cash budgets are typically calculated monthly. But in special situations such as those that have arisen in recent months, you might want to review your cash assets as often as weekly.

Here’s how to prepare a cash budget in four steps:

1. Project your accounts receivable realistically

Review your payment requirements and realities. For example, even if you require payment within 30 days, you might have a client who typically takes 45 days to pay invoices. This is an important factor to consider when projecting your accounts receivable.

In other words, an invoice issued in July might not translate into a deposit until September. Also, in times of turmoil, some clients may take longer than usual to pay invoices.

2. Review other cash sources

You may be expecting income from other sources, such as:

  • Deposits from clients for upcoming work;
  • The sale of fixed assets;
  • Grants, government assistance or tax credits for which your company is eligible;
  • New loans or deposits from an available line of credit.

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3. List all your expenses and other cash outflows

The easiest way to do this is to look at your expenses from the previous period (month, quarter or year). You may find it helpful to categorize expenses based on whether they are fixed or variable.

Fixed expenses—like administrative salaries, rent, insurance, travel expenses and utilities—are those that you have to pay regardless of the business’ earnings. They are the largest source of pressure on a company’s cash flow.

Variable expenses (or cash outflows)—like raw materials, direct workforce wages and royalties—are subject to change, depending on the company’s earnings. Typically, these expenses are scaled back as revenues decrease.

At this stage, you should also take into account the company’s loan payments (capital and interest). Loan deferrals or other relief measures may be available. It’s certainly something worth looking into.

4. Analyze your accounts payable (suppliers, taxes, payroll, etc.) for the previous month, quarter or year

What payment terms apply? When will you be able to make your payments? It’s very important to know exactly when you plan to make these payments so that you can compare them to your projected deposits for the same period. That’s how you predict a cash shortfall or surplus for a given period.

By following these four steps, you’ll have a better understanding of your business’ cash flow situation and be better prepared to take proactive measures as needed.

25 Mar 2020  |  Written by :

Sébastien Roy is an expert in business valuation and financial litigation. Contact him today!

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Nancy Jalbert
Partner | CPA, CA | Management consulting

When external circumstances like the coronavirus impact business operations, focus on each affected area to control damage.

So many variables can affect your operations. As a business leader, you need to assess sales levels, personnel availability, operational inputs, equipment capacity, work teams, infrastructure quality and technological capabilities. Each of these considerations can impact your ability to achieve production and performance targets.

When a crisis strikes, several problems can surface, including:

  • Unpredictable sales volumes, with substantial increases or declines;
  • Variations in employee availability, affecting their hours or ability to travel. In some cases, workers may be entirely unavailable;
  • Supply chain disruptions;
  • Product scarcity or unavailability.

The keys to effective crisis management

If you want to minimize business impacts and maintain an equilibrium, you may need to adjust certain procedures. Carefully evaluate each variable impacting your operations, assess associated risk levels and establish priority actions.

Here’s a summary of what you need to consider.

Dynamic production planning

  • Clarify employee availability;
  • Assess supply chain issues and how they could impact production;
  • Assess your company’s capacity surplus or shortage;
  • Determine which tasks aren’t critical to business continuity and eliminate them in priority order;
  • Implement a dynamic production planning tool and increase planning cycle frequency;
  • Set up tracking mechanisms and schedule frequent checks with the sales team.

Technology optimization

  • Use available technologies to run simulations of different scenarios.

Actual cost reviews

  • Assess how volume fluctuations are affecting your variable and fixed costs, and determine your breakeven point;
  • Develop a plan for reducing fixed costs.

Implementing these actions can help you control costs and improve operations. When combined, small actions can make a big difference. Do the right thing for your business’ future by preparing for the unexpected.

Our operations analysis experts can help you implement fast and effective solutions so that you’ll be ready for whatever lies ahead.

24 Mar 2020  |  Written by :

Nancy Jalbert is a partner at Raymond Chabot Grant Thornton. She is your expert in strategic and...

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Nancy Jalbert
Partner | CPA, CA | Management consulting

Supply chain management is critical for many businesses. When a crisis hits, you need to proactively reinforce your supply chain so that you can continue meeting customer demands.

It’s important to take a structured approach to logistics planning and organization so that your business doesn’t find itself in a tough situation. Effective planning can prepare you for issues such as:

  • A supplier being out of stock;
  • Delayed delivery times;
  • A supplier being quarantined;
  • Shipping and distribution problems.

Meanwhile, internal issues could affect your ability to pay suppliers on time or meet your contractual obligations with them.

All of these factors could impact your operations.

How to secure your supply chain

Start by assessing the situation quickly and then moving forward with an action plan aimed at preventing problems and implementing solutions.

Monitor inventory levels

  • Keep an eye on variations in sales so that you can effectively estimate needs;
  • Establish critical inventory thresholds and build stockpiles as needed;
  • Create quarantine areas for certain goods;
  • Use the special inventory and restocking features in your management systems.

Strengthen relationships with customers

  • Find alternative shipping methods;
  • Adjust customer delivery schedules based on your suppliers’ ability to replenish stocks—and don’t forget to add a buffer;
  • Contact your clients and be transparent about the situation.

Cement relationships with suppliers

  • Control cash flows so that you can pay for shipments upon delivery;
  • Determine who your critical suppliers are and check in to see how the situation is affecting them;
  • Look for replacement suppliers as needed and contact them as quickly as possible;
  • Negotiate payment terms with your suppliers.

All businesses will be facing a certain degree of volatility in the coming weeks, which will force them to be flexible in their operating procedures and dealings with suppliers and partners. There are several factors that can influence supply chains, and these factors can change quickly.

Now is the time to look ahead and take action before issues arise. But rest assured that you don’t have to do this alone. Our team is available to help you get through this challenging period. Put our expertise to work for you. Together, we can weather the storm.

24 Mar 2020  |  Written by :

Nancy Jalbert is a partner at Raymond Chabot Grant Thornton. She is your expert in strategic and...

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The coronavirus outbreak is affecting businesses around the world and forcing entities to carefully examine how the situation might affect their financial reporting. This IRFS Alert looks at the impact of the coronavirus for the year ended on December 31, 2019.

Is the coronavirus crisis considered a post-reporting period event (also known as an adjusting event) for the year ended on December 31, 2019?

  • Entities should review IAS 10 – Events after the Reporting Period to determine whether or not the coronavirus crisis is an adjusting event.
  • We believe COVID-19 surfaced and spread in 2020 and that there is insufficient evidence that it existed at the end of the reporting period on December 31, 2019. This therefore makes the outbreak a non-adjusting event.
  • Entities should ensure that the valuation of their assets and liabilities as at December 31, 2019 is not affected by the coronavirus crisis, which occurred subsequently.

Disclosure

Entities must disclose if a non-adjusting event has had a significant impact on their financial statements. Any such disclosure must include the nature of the event and either an estimate of its financial impact or an indication that the impact cannot be estimated.

Do you have questions about the coronavirus’ impact on financial reporting?
Our team is here to help.