Improvement is only possible with adequate control and proper data collection and analysis. I will explain why cash management and financial control are the prime contributors to any operational improving process. Many have described operational optimizations as the studies of operations, performance, efficiency, and effectiveness. But all efforts must be measured by how they impact the bottom line, and by the bottom line, I referee to the company’s cash position and net profit as shown in the profit and loss statement.
What we understand as cash management for financial control: Today’s corporate leadership, regardless of its industry, type, or size, every cash management solution must measure the cash inflows and outflows, vendors and employees pay, investment to manage, and financial data for internal control or to report to lenders or regulators. Cogent Analytics provides, implements, and trains our clients with cash forecasting tools that allow them to make informed decisions to generate account wealth. Having the proper controls in place is vital to monitor the effectiveness of the operations.
Treasury management, taking control over business banking financials.
An organization requires treasury management and cash management. There are many ways to improve the treasury of an organization, and all of them positively impact the financials. Strong financials facilitate funding for the implementation of operational systems improvements. A balanced assets-to-liabilities ratio improves the probability of third-party financing and investor relations. Also, we review short-term fixes during your interaction with Cogent Analytics within the first week. For example, listing all short-term current liabilities, prioritizing by their respective fees, and establishing payment priority are some of Cogent’s many short-term fixes.
Typically consolidating commercial banking debts reduces the overall burden of financial costs. Cogent assists clients with tools to improve the efficiency of a company’s use of working capital, the Cash Conversion Cycle (CCC) Review, and acceleration deliverables. The resulting review enhances the client’s operating capital by implementing process improvements to reduce the time it takes to sell inventories and collect payment while paying for supplies. Another example is using Cogent’s Cash Management System (CMS) in conjunction with a Zero Balance Account. A ZBBA proves effective and efficient use of on-hand cash. “The WAY:” Implementing successful treasuring enhancement processes generates additional revenue contributions to the bottom line and adds to the funding available for required operational system improvement.
A focus on monitoring liquidity.
Clients are focusing on monitoring liquidity. Cogent Analytics has developed the Cash Management System (CMS) and the Wealth Budget / Profit Plan to assist clients in proper cash management. These two tools provide a twelve-week and twelve-month view of the organization’s cash inflows and outflows, including investment management. Generally, any improvement in an organization’s operational systems requires capital. The prime objective of the said investment is to improve performance and efficiency, always safeguarding companies’ cash balances. “The WAY:” Regardless of the size or complexity of a client’s organization implementing proper financial control on treasury and cash management lays the foundation for excellent performance.
Collecting account receivables.
Before we worry about safeguarding cash, you must generate it by collecting the proceeds from selling products and services. Cogent assists the client with implementing the Account Receivables (A/R) Policy, developing Standard Operations Procedures (SOP), Training, and Implementation. The work begins with evaluating the existing processes. Review the controls associated with receiving and processing orders and contracts, generating invoices, recording the receivables, processing cash receipts, and monitoring collections. “The WAY:” Implementing the proper controls over the sales to collections process lays the foundation for wealth generation. Without cash, there is no funding, and without funding, there is no operational systems improvement.
Optimizing cash management and operational system improvements.
The key to excellence in performance is optimizing all processes. This idea includes the one that clients generally disregard, the Accounts Payable (A/P). I am trying to remember, unsuccessfully, an instance where the A/P was equal to or less than the incoming payment schedule. The optimization of this process begins by reviewing the purchasing procedure, identifying the critical suppliers of services and goods, and establishing a payment priority. First paid are the ones that permit the client to continue to keep the doors open. Cogent offers to assist clients with implementing the Account Payables (A/P) Policy, developing standards, and training by implementing job-specific SOP. We at Cogent Analytics assist clients in composing an accurate and organized list of A/P with the payment schedule. Maintaining excellent relationships with your providers, especially during supply chain issues, will leverage your position. This influence impacts, among others, project execution as you implement your operational systems improvements. “The WAY:” Efficient project execution reduces capital expenditure, efficiently using available funding, improving your cash flow and net profit.
Managing cash outflow.
Material planning, vendor management, inventory control, optimization, and many others are essential Cogent deliverables. Improving operational systems typically requires capital investment (CAPEX). The execution of said CAPEX projects requires adequate material control as part of the integrated project control cost and scheduled system. An effective strategy for engineering and procurement of said CAPEX projects is functioning with on-hand spare parts, consumables, and equipment currently in inventory. Use inventory control and optimization to satisfy customer demand and smooth market fluctuations. CAPEX project execution’s best practice is to use all on-hand inventory. Therefore, avoiding procuring new equipment and materials reduces the CAPEX project cost. Nevertheless, you will always have to procure new equipment and consumables.
Give consideration to adequate material planning and vendor management, which are vital to production planning and optimization through collaboration with vendors, suppliers, and service providers. The operational system improving the CAPEX project will access and build in said procurement optimizations. “The WAY:” Efficient project execution reduces capital expenditure enhancing your cash flow and net profit.
The importance of financial reports in proper cash management.
In regular accounting, closing and issuing company financial reports require discipline and rigorous scheduling, especially to comply with internal and regulatory reporting. Achieving financial control of your company’s cash management solution requires maintaining complete and accurate financial documentation. Most of the management tools available through Cogent require three years of sound financials: Financial statement analysis from balance sheet and profit and loss statements. In more instances than one, small businesses need cash management services to fix their books to allow the implementation of said tools. Managing your company effectively and efficiently requires the use of practical tools.
During the discovery phase of Cogent’s evaluation process, the analyst assesses the need for an accounting review. As a starting point, I promote an initial Account Services Review (ASR) that identifies all issues. This process is a short but intense review that yields recommendations that the client can implement directly or, if requested, Cogent can fix.
Typically, the ASR will review the chart of accounts, the systems and procedures, internal financial controls, commonly used reporting, and inventory management, among others. After review, the client gets an outline of the identified recommendations and associated actions required to ensure adequate and accurate financial reporting. Without financial management, you may be out of control. Typically, the bottom line of the profit and loss statement shows a false net profit, better known as “phantom profits,” which explains the lack of cash in your multiple accounts. “The WAY:” Efficient financial control enables operational system improvements.
Reaching positive cash management and operational system improvement.
In conclusion, operational systems improvements are only possible with adequate business financial planning, cash management control, and execution. All CAPEX projects must have financial ranking and prioritization. Economic indicators (EJ.: ROI) typically determine the order of execution. Evaluation of processes and funding controls is part of yearly strategic planning and budgeting. Using Cogent’s CMS and Wealth Budget / Profit Plan will also facilitate the analysis of funding options. The best projects are self-funded, with the client’s resources or private or public funding. A financial institution often will not take the execution risk of any CAPEX project. They only fund projects with an established cash flow. Banking institutions typically limit the loan amount to your repayment capacity. Therefore, the client must provide or pelage his resources to secure the operational systems improvements. “The WAY:” Successfully improve your operational systems with financial control as the prime contributor