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Cash Flow Management Strategy - Apohan Corporate Consultants Pvt. Ltd.

Cash Flow Management Strategy

Apohan Corporate Consultants Pvt. Ltd. > Financial Strategy > Cash Flow Management Strategy

Cash flow management strategy

The cash flow of a company is a very critical dynamic parameter. Apohan provide services to strategically manage cash flow on daily, weekly, monthly, annual and decadal basis.

Some businesses are intrinsically unviable irrespective of carrying out all the fine tuning processes in all possible aspects related to the business model. Some businesses have limited potential. However, many businesses have great degree of potential for growth and expansion. We can see around that businesses of similar nature are flourishing in the market. The future of a business is determined by some internal factors and some external factors. The external factors are either out of control of the management or have only partial control. However, the internal parameters are in complete control of the management. Despite favourable external factors some companies fail to grow or occasionally suffer from financial distress.

Gradual downfall of a company when cash flow management is poor

We can see the following state of operations of the companies depending upon their profitability and growth:

  1. Companies growing at an extraordinary pace with an extraordinary degree of profitability with high PE ratio.
  2. Companies growing at an extraordinary pace with an ordinary degree of profitability.
  3. Companies with an ordinary growth rate and a respectable degree of profitability
  4. Companies with an ordinary growth rate and a low degree of profitability
  5. Companies with hardly any growth and a very low degree of profitability
  6. Companies that are able to generate cash flow only to operate marginally beyond the break-even operating capacity
  7. Companies that are making neither net accounting profit nor net accounting loss
  8. Companies that are making some net accounting losses
  9. Companies that are not able to pay full principle but can make all the interest payment.
  10. Companies that are not able to pay any principle and not even the full interest on the debts
  11. Companies that are not able to redeem the liabilities under various financial instruments
  12. Companies that are not able to serve the debt & all other financial liabilities at all
  13. Companies that making neither operating profit nor operating loss
  14. Companies not able to generate sufficient cash flow to meet all the non-financial running costs
  15. Companies making permanent operating losses
  16. Companies eroding the capital in the current operations
  17. Companies rapidly eroding the capital in the current operations
  18. Companies not doing anything for financial restructuring
  19. Companies where shareholders’ net-worth in the company is zero as per market valuations
  20. Companies where the shareholder has negative net-worth
  21. Companies where the stakeholder value has eroded to the maximum possible level or at least has completely evaporated
  22. Companies impossible to run as going entities even with infusion of capital
  23. Companies headed towards insolvency, bankruptcy, and liquidation
  24. Companies where the personal assets of the promoters, directors, guarantors are being attached
  25. Companies where there are civil or criminal litigations against the management apart from financial bankruptcy

Projections of cash through professional FINANCIAL MODEL over project life-cycle

Financial model has a few independent threads. One of them is the project cost. Along with impact of inflation the for the commissioning of the project and the interest during this period, total project cost is calculated. Based on this overall requirement and requirement of the working capital other than from the internal accruals, capital requirement is calculated. Revenues are projected based on the market survey and the marketing strategy including the pricing strategy and capacity utilisation plan. Gives an idea of the projected revenues. The operating costs calculate are calculated based on the configuration of the manufacturing facility, the human resources required, the raw material required, the marketing costs, manufacturing overheads, the corporate overheads, etc. The components of the total project cost help in preparation of the depreciation schedule for accounting purposes and tax purposes. The debt component in the capital structure provides a way to calculate the future interest payments and repayment of the principal amount. With the help of all these inputs, the financial statements in terms of profit and loss statement, balance sheet and cash flow statements can be prepared. After checking for errors and fine tuning, this financial model will provide the desired answer. The degree of e-tailing would depend upon the size of transaction are the worth of the transaction for the organisation.

Banks’ Indifferent Attitude Towards Business’s Cash Flow Situation

Don’t look at the merit of the business, quality of the management or potential of the business sufficient criteria to lend. They must be provided some or other type of security on margin money which becomes a serious limitation on the amount of fund that can be raised. As an institutional lender, bank officers have very less flexibility in processing the loan applications and they made turn down and application even for frivolous reasons. They will not provide loans to new businesses for businesses with poor credit history. Technically, a business is a client of the bank but there is hardly any tendency to sell more. In India, there is good degree of corruption in the sanction process. The corporate form of business is to basically segregate the the owners from the management of a company in terms of any rights and liabilities. But the bank requires the promoters and the directors are the shareholders to provide personal guarantees putting their personal properties at risk. We can see a number of cases in the market, where the banks are auctioning the personal assets of many businessmen. The plight of such honest businessmen is the last thing one would like to see. The phenomenon of these options discourages a layman from undertaking any business venture. Another aspect of bank loan is that it becomes more difficult to avail any money in difficult times. So banks are only good weather friends. In the history of long existence of a business, they do suffer a once in a lifetime misfortune due to circumstances beyond control of management. The business is still very much viable if certain relaxations or or additional credit is provided. The worse the situation of a business, the worse the behaviour of a bank! Payment to bank takes the first priority, and if a good opportunity is is passing by, the business cannot use its money to pursue that opportunity. Occasionally, this does cause a very serious opportunity loss to a business. Bank loan repayment in most of the cases must start almost immediately. For businesses with a long gestation period, this becomes as good as borrowing from the bank to pay the bank. Banks are very rigid when it comes to provision of enhanced credit or credit with second charge even if the value of the security has increased. The financial expertise is of the banks is of absolutely no use to a business. The rules of the banks are very stringent when it comes to to providing better terms on request of a borrower. It is most likely that most of such requests are rejected by the bank. Bank is simply not bothered with the cash flow situation of the seasonality of a business. They are very particular about the date of payment of the installment amount. One may lead to think that bang doesn’t interfere in the day-to-day operations, but when a business defaults the bank takes complete control of the business intends to be driven by the sole objective of realising its own dues without any regard to future of all other stakeholders of the business. A bank does not have business competence, and hence mostly fails to to sale the business as a going entity. This results in liquidation of a business resulting in huge economic value loss. Banks are protected by a very solid legal framework and the entire machinery of the state for law and order is there hands to recover the dues. One more disadvantage of bank lending is that the banks cannot distinguish between wilful default and a circumstantial default. Their treatment of the good, bad and the ugly is the same. This leads to emotional and psychological distress of a genuine businessman. The banks have their own rules of sector exposure, single account exposure, etc. With the increase in Corpus of the loan amount, the process of bank loan becomes equally tedious as equity funding. The small local, rural, cooperative, district, urban, etc banks have relaxed credit norms but their interest rates are very high. This kind of disadvantages more or less apply to all other types of institutional lenders. Apohan helps a business in negotiating the bank loan contract and having a successful borrowing strategy. However, unlike we provide end to end services in equity funding, we don’t provide end-to-end services for business loans from banks and other institutions. Apohan’s unique selling point is its ability to successfully generate equity funding.


Subject to the technical limitations, immediately after the commissioning of a manufacturing facility, the plant should start operating about break even operating capacity. Required working capital for operating beyond break even operating capacity, should be made available as a part of project management and not as a part of operations management. A manufacturing facility can reach hundred percent operating capacity from the break even capacity only if it starts operating beyond break even capacity right from the beginning. If a plant operate below break even capacity for a substantial period of time in the beginning, the company makes losses and subsequently may have to be closed. In the Indian small and medium enterprises, it has been observed that the working capital is misconstrued as short term capital. The banks provide cash credit and overdraft limits based on the existing level of inventory or any other security. A business cannot borrow working capital without providing existing inventory for new security. In the project planning, if provisions are not made for this, the plant starts operating at very low capacity in the initial period; pet me not be able to recover the fixed costs; it may not be able to to generate sufficient cash to serve the date of the banks. Can be termed as infant mortality e of a small and medium Enterprise.
Once the initial long term fixed component of working capital for operations level break even are taken care, the internal accruals of the operations can provide the increase in working capital every year to reach hundred percent operating capacity. If it is impossible for a business to make available all this working capital because it is too huge, then such business should negotiate a Moratorium of 6 months to a couple of years till the company starts operating beyond the break even operating capacity. Initial amount of working capital should be treated as part of the main capital in the process of capital structuring.
The cash credit and overdraft limits available from a bank are supposed to be used frugally
And should not be treated as if they are long term-capital. The rates for these loans are high and if a certain minimum amount is going to be permanently needed, it should be replaced with the long term loan.

Budget management advisory

Apohan provides Consulting Services for forecasting the revenues & expenses, inflows & outflows & their times to prepare the financial budget of the company.

Apohan Services:

Apohan provides short-term cash flow management & project life cycle level cash flow management services.

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