cash

cash

by scott pickard

Cash is king, as the old saying goes. It is the one resource a company cannot survive without for any length of time until the doors are closed, voluntarily or involuntarily, which is why the CEO must find or develop a method to reliably understand and predict the company’s current and future ability to generate the cash it needs to pay all of its bills.

Forecasting cash flow is much easier than it used to be, thanks to the convenient number-crunching power of PCs and spreadsheet software which allows one to build an Integrated Spreadsheet which links a projected balance sheet and income statement for the business. The Integrated Spreadsheet is a tool that will give any CEO the positive direct control they must have over the financial rudder of the business.

A wise time investment for CEO’s
A company’s cash flow at any point in time is a juxtaposition of payables, receivables, debt service, capital expenditures, sales/repurchases of stock, and other factors. An Integrated Spreadsheet handles this complex financial interaction with electronic precision. Using this tool, a CEO can more carefully predict where the company is heading. That’s powerful planning and peace of mind for the executive/owner that shoulders the burden of consistently meeting payroll and staying current with suppliers on all bills.

  • The Integrated Spreadsheet gives the CEO a rational way to appropriately pace capital expenditures, quarterly (or even monthly) bonus payments, and sweeps of excess cash into less liquid but higher-returning financial instruments at the earliest possible time.
  • The Integrated Spreadsheet allows the CEO to look at the effect on cash from big-picture business initiatives such as acquiring a new business, selling off a division, developing and staffing a new department, or launching a new product line.
  • Using an Integrated Spreadsheet helps the CEO disclose mistakes that are sometimes made in monthly financial statements from either miscoding or a faulty accounting interpretation of a particular transaction.
  • With an Integrated Spreadsheet the company always has a three-year plan that is built on actual operating numbers, but fine-tuned to reflect management’s best judgment of future revenues and expenses.
  • The Integrated Spreadsheet can easily generate an unlimited number of graphs to analyze past performance and predict future performance which is often the most effective way to communicate financial data to employees, directors, shareholders, and the bank.
  • An Integrated Spreadsheet will demonstrate to the bank, board, and investors that the financial management and budgeting of the company is under control which promotes confidence in the officers and the business by its internal and external constituents.

DIY

Assuming the user knows their way around a spreadsheet and double- entry accrual accounting, the structure of an Integrated Spreadsheet can be set up in a few hours. It will take a day or so to input the previous twelve months of operating data; a day to input informed estimates of revenues, expenses, and capital expenditures for the next twelve months and to fine-tune those estimates; and a day to train all users who will have access to the Integrated Spreadsheet.

If the CEO cannot spare the time, this task can be delegated to inside accounting staff or subcontracted to an outside accountant or consultant. If this project is delegated, it is still important that the CEO be trained in the use of the Integrated Spreadsheet so that he or she can perform what-if analyses and generally watch over the constantly revising forecast of the financials of the business, a function that should be owned by the CEO. Financial forecasting involves hundreds of experience-based estimates of highest-probable outcomes of revenues, expenses, capital expenditures, debt service, equity inflows and outflows, extraordinary gains and losses, and other income and expenses, by someone that has the overview of the business. The CEO has this overview as it is part of the responsibility of the position.

Basic structure of the integrated spreadsheet
It is important for the user to have a general understanding of how the spreadsheet is laid out and functions. The integrated spreadsheet has three major components:

  • Balance Sheet
  • Income Statement
  • Cash flow adjustment

These three components are linked or integrated so that they balance or tie out in accrual accounting terms. These integrated accounts are highlighted in various colors as shown on the diagram below:

cashflow

The major points of integration are identified by the matching colors. For example, the link between “depreciation” on the balance sheet and “depreciation expense” on the income statement is shown in brown, since these two entries must be identical in double-entry accrual accounting. There are in fact numerous links between the income statement and the balance sheet as a result of the double-entry methodology. The beauty of the spreadsheet is it affords the user the flexibility to add/subtract/modify at will and build increasing sophistication into the integrated spreadsheet enabling a more realistic modeling of the financial dynamics of the business.

I’ve posted a power point presentation on prezi that leads you through the basic construction of the integrated spreadsheet. The secret sauce in this process is the synching of a cash flow adjustment (plug) at the bottom of the spreadsheet below the income statement as shown in the diagram below:

2slides

By wiring together these key accounts to calculate the actual cash flow for each month, this will cause what’s known as a circular calculation in the spreadsheet which is normally a no-no, but in this case it is a good thing! The user simply needs to go into “settings” and set the automatic calculation to 100 iterations and the spreadsheet will automatically recalculate and balance the statements after each new value entry to a cell.

Using the tool

Once the integrated spreadsheet is set up, using it effectively involves inputting the actuals from each monthly financial statement as they occur and reforecasting the numbers going forward from the most recent actuals. This process repeats itself every month — inputting the most recent actuals and reforecasting ahead — and as each month goes by and the user gains experience in using the spreadsheet and making experience-based judgments of how the numbers will track, the integrated spreadsheet becomes an expert system that does a better job over time of forecasting the financial fortunes (or misfortunes) of the company. The key point is that all of this boils down to one most important account: cash flow.

Once the process of updating actuals and forecasting ahead is complete,
the CEO looks at the impact on cash and then develops a financing plan
that optimizes the uses of working capital in the next six months and beyond.
If the projected cash flow shows surpluses being generated, the CEO can
decide how that excess cash could be used today and in the coming months
to:

  • Reduce payables
  • Reduce long-term debt
  • Make capital expenditures
  • Make other long-term investments

If the projected cash flow is negative, the CEO must plan for how the
minimum working capital requirements for the business will be generated to
carry the company through tight cash periods by a combination of:

  • Drawing down cash surpluses
  • Deferring certain operating and capital expenditures
  • Extending the payables cycle for a brief period within acceptable bounds
  • Making a draw on an operating line of credit
  • Securing additional long-term financing
  • Raising equity capital through the sale of common or preferred shares

Summary

If the CEO can build the integrated spreadsheet for the business and start using it each month ( if not each day), learning by doing is the most efficient user’s manual. The CEO will quickly discover the many dimensions of value that are derived from the integrated spreadsheet aside from the very tangible value of forecasting cash flow. The integrated spreadsheet causes the user to think about every aspect of the business, across all accounts, across time, across strategies, by looking back to look forward. And at the end of the exercise instead of saying, “I hope we’ll have the money in the bank when we need it,” the CEO can say, “We expect to have the cash we need, and here’s how.”

That’s powerful business confidence!

- sp -

Fourth Industrial Revolution

Human Society Production and Utilization of Wealth  Are we on the cusp of a Fourth Industrial Revolution?  Will it be a force for good or evil?  Will it provide new opportunities for all, or will it exacerbate inequalities? Davos ‘16 > Randomness/unintended Economic Theory and Systems Economic Theory: index of economic freedom Economic Systems Historical development of economic systems Capitalism Centrally-planned systems Appraising economic systems The Consumer and the Market Scarcity, utility, and value: behavioral economics: | Valuation Consumer behavior: Buying Decisions | inelasticity Markets: markets hate uncertainty Price system in capitalist economies Organization of Production and Distribution Organization of the production of goods Marketing and Merchandising Inputs of the productive process Institutions that facilitate business formation, production, output Money Currency & Exchange Stock exchanges: AI Banks International: Bank for International Settlements BIS economic statistics business organization stock markets: Volatility Index (VIX) fear index Agricultural economics International trade Government’s role in production & distribution: privatization Methods of business organization Advertising & Promotion Distribution of risk Consumer credit: Don’t use a credit card for a loan sp Distribution of Income and Wealth the rich get richer and the poor get poorer Matthew Effect Distribution by categories of the population: Forbes 400 | gini coefficient How government affects the distribution Capitalism Taxation Laffer Curve postulates that no tax revenue will be raised at the extreme tax rates of 0% and 100% and that there must be at least one rate where tax revenue would be a non-zero maximum. Poverty Macroeconomics National income and employment theory misery index unemployment: U3 and U6 Intl. equilibrium and disequilibrium Business cycles Inflation and deflation key indicators: monetary velocity Economic Growth and Planning Nature and causes of economic growth Planning for economic growth and stability Government Finance Growth  books, forums, journals: innovation: The Fourth Industrial Revolution Schwab | behavioral: Misbehaving Thaler | Capital in the Twenty-First Century Piketty big ideas | Stealth of Nations by Neuwirth | The Mystery of Capital De Soto | The Wealth of Nations Smith | Wall Street Journal | World Economic Forum Davos

Davos 2016: Fourth Industrial Revolution

 

Building the Integrated Cash Flow Forecasting Spreadsheet

Global Trends 2030

Time Future  Has technology given us the opportunity to flourish, or to self-destruct? Why can’t we remember the future? What is emerging? What impact will it have?  in general: The best way to predict the future is to invent it. Kay | aircraft/car | digital archive of you: lifenaut | education: Houston Foresight, thefutureschannel | energy: The Future of Energy | food: The Future of Food NG | gamification: gaming the future | history: Italian Futurism Manifesto 1909 | paperless society portals: BBC Future, Matter longform journalism, paperless society, PBSK Labs editorial |  time capsules: one second per day think tanks: extremism: Challenging Extremism, quilliamfoundation | www.aspeninstitute.org, bakas, fastfuture, Institute for Global Futures, iftf, thefuturelaboratory | atlantic council | big issues: www.millennium-project.org, www.fhi.ox.ac.uk, thersa.org | directory: www.lib.umich.edu/govdocs/psthink.html#comp | energy security: Institute for the Analysis of Global Security iags.org | European security: European Leadership Network ELN | international affairs: chathamhouse | long-term thinking: Club of Rome, futuristspeaker, hybridreality.me, longbets, Long Now Foundation | survival of the species: Future of Humanity Institute, Future of Life Institute  books: forecasting: Global Trends 2030, Superforecasting Tetlock big ideas > Predictive | Future Science Brockman | Future Shock | Hybrid Reality Ayesha | The Competition of Ideas Weidenbaum | The Extreme Future Canton | The Revolution Will Be Digitised Brooke | The Tyranny of Dead Ideas Miller

SOURCE: International Futures Model

 

LinkedIn posts (writing)

Particular Arts / literature Writing a writer writes in general: I write to discover what I know. O’Connor | automation: Babel Generator | buy/sell: storiad | collaboration: mixedink, The Writing Squad | content-as-a-service: Structured Information | contests: write a novel in a month |diaries: Grownups Read Things They Wrote as Kids > Radio | editing: scribendi | freelance: contently | LinkedIn: The Power of LinkedIn Posts sp | query letters | software tools: scrivener | teaching kids to write: boomwriter, 826valencia | whitepapers: template | word/character count: Text Mechanic, Word Count Tools grammar & references: citing sources: endnote, www.noodletools.com/quickcite | Common English Errors: www.wsu.edu/~brians/errors/index.html | Guide to Grammar & Writing: http://grammar.ccc.commnet.edu/grammar | Presentation Tips: http://wps.ablongman.com/ab_public_speaking_2 | Press Release Guide: www.press-release-writing.com quotes: The hardest part of writing is the first word. sp |Bartlett's Quotations: www.bartleby.com/100 | Brainy Quote: www.brainyquote.com style guides: Citation Styles: www.bedfordstmartins.com/online/citex.html | Economist Style Guide: www.economist.com/research/StyleGuide | Elements of Style: www.bartleby.com/141/index.html | skills: 15 Online Resources to Upgrade Your Writing Skills Crosby  vocabulary : Can improving your vocabulary improve your life? (a) formulate your ideas better; (b) write better papers, emails and business letters; (c) speak more precisely and persuasively; (d) comprehend more of what you read; (e) read faster because you comprehend better; (f) get better grades in school; (g) score higher on tests like the SAT, GRE, LSAT and GMAT; (h) perform better at job interviews and conferences; (i) sell yourself, your services, and your products better; (j) be more effective and successful at your job voice recognition: iPhone: siri | nuance blogs, books, movies, portals: A Moveable Feast Hemingway | On the Boulevard sp | screen writing: Barton Fink Coen | The Elements of Style Strunk | writers: Mr. Gwyn | Writer’s Digest | Writing a Winning Book Proposal

Using Prezi for Simple Gantt Charts

by scott pickard

I have been experimenting with using Prezi as a way to create simple Gantt charts. If you’re like me, you’re a big fan of the Gantt chart and how effective it is in communicating the timeline and priorities of a project. But most of our projects are fairly simple and last less than a year, so the software tools that are out there which can help you plan a moonshot are simply overkill for the simple projects; i.e., dependencies, resource leveling, unit costs, etc.  I’ve used spreadsheets, but it takes a lot of manipulation to create the taskbars and update them. I’ve also used Smartsheet, but once again it really gives me more functionality than I need (and want to pay for!).

I’ve had it in the back of my mind for awhile to give Prezi a try because I love inventing ways to use Prezi and I’ve discovered that it is perfect for creating simple Gantt charts and then being able to easily update them without a lot of manual tinkering.  I’ve coined the term “Prezi-Gantt“.

Here’s a link to a public Prezi-Gantt chart you can check out to see what it looks like. I’ll give you a few benefits and tips but if you’re a Prezi user, just jump in and try it on your own and you’ll find out it’s pretty easy to use.

prezi-gantt

Try creating a “Prezi-Gantt” for simple projects.

  • Prezi is FREE!
  • Prezi gives you have an infinite online canvas and depth-of-field to either zoom in or zoom out at will.
  • You can share online your Prezi-Gantt utilizing Prezi’s three-level privacy functionality:
    • Private: Only you can view and edit.
    • Hidden: You can view and edit. Collaborators can view if they have the link.
    • Public: Can be viewed by the world if they have the link.
  • You can put a frame around that part of your Prezi-Gantt that you want people to focus on, and then you can remove the frame and redefine another area of focus.

frame

  • The text box in Prezi turns out to be perfect for creating a taskbar which you can stretch forward or backward with ease.
taskbar

The text box in Prezi makes a perfect taskbar.

  • Within the text box (taskbar) you can either describe the task and task owner within the taskbar, or you can put this information in front and/or behind the taskbar, your choice.
  • I use vertical lines within the taskbar (|||||||||||||||||) to show progress (percent complete).
  • I place a bold vertical red line to show the current date, and then all you have to do is click on the line and then use the arrow key to move the line forward when you need to update the Prezi-Gantt.
  • It’s easy to adjust the horizontal position of your task bars by simply clicking on the taskbar and then using the arrow key to either move it left or move it right.
  • If you want to insert a new task within a group of tasks, you simply create a frame around the block of tasks, then you click on the frame to move the entire block of tasks down and then it gives you room to insert a new taskbar. Then you can click on the frame and move the block of tasks back up using the arrow key.
  • Framing a block of tasks so you can move them up or down, left or right, is the “guru move” for the Prezi-Gantt.  It may sound a little complicated but after you do it a couple of times, you’ll find it’s really easy and powerful.

Please give the Prezi-Gantt a try and let me know how it goes!

- sp -

When it comes to college for your kid(s), what’s a parent supposed to do?

by scott pickard

Instead of saving $100K-$200K per kid to go to college, start teaching them how to master the skills of the lifetime online learner:

  • How to master independent study and research
  • How to master using the computer, software, and mobile devices
  • How to create and exploit one’s personal and professional networks
  • How to supplement online learning with daily engagement in the real world
  • How to achieve a healthy balance between the virtual and real worlds
  • How to survive and thrive in a rapidly disrupting world with new rules
  • How to define success for yourself, not by others

sp

University Disruption of BIG UNIVERSITY is starting in slow motion, but will soon accelerate very rapidly. sp Is a college education (average $100K) the largest risk in a young person’s lifetime? Is a college education (still) worth it? Will competency-based education be the BIG DISRUPTOR of universities? How has politicization of university governance (by state governments) critically damaged the university? Is the notion of the large, massive public university dead? Why? Can the university continue to be all things (education) to all people? Is a new approach to tenure needed to ensure the university stays relevant to students and the outside world? What is it? Is the footprint of the university just too large to sustain? (a) land; (b) buildings; (c) utility infrastructure; (d) academic programs; (e) athletic programs; (f) employees Can corporations mitigate this problem by buying and/or long-term leasing underutilized assets? What are the advantages and disadvantages to this notion? Is the university’s educational model increasingly falling behind the Internet-inspired leveling of the social playing field? If so, why? (a) old traditions; (b) old principles; (c) old programs & departments; (d) waning elitism; (e) obsolescence of tenure & “academic freedom”; (f) civil service-style bureaucracy; (g) union overhead What academic programs and operational functions should and/or could be outsourced more efficiently and with equivalent if not better quality of service? How much and how fast should the university migrate academic programs and operational functions to the cloud? What can we learn from California today to take action on tomorrow? Is online education a threat to tenured professors? If so, how would that affect their objectivity towards radical change to survive? What kind of changes would alumni want to see first before they step in to help out? Are universities vulnerable to the lure of short-term, job-hopping academic administration superstars?  Do they damage the university? Are too many kids going to college? (a) unemployment; (b) indebtedness; (c) happiness in general: competency-based education: flex | conferences: Schools for Tomorrow, Summit On Online Education 2012 big idea | democratizing education | faculty performance tools: digitalmeasures | fraternities & sororities: Theta Xi, 1971 sp | Massively Open Online Courses MOOC | online platforms: kaplan, straighterline, 2U | student loans: pay it forward NPR | students speak out: unitingillini | watchdog: Campus Reform books and articles: Academically Adrift Arum | Change.edu: Rebooting for the New Talent Economy Rosen | College (Un)Bound Selingo | Going Broke by Degree: Why College Costs Too Much Vedder | Mismatch | MOOCs lead professors to rethink online ‘classroom’ strategy Helenthal | Precipice or Crossroads? Fogel | return on investment (ROI): College Doesn't Pay for Everyone | Scholarship Reconsidered: Priorities of the Professoriate Boyer | The Great American University Cole | The Higher Education Bubble Reynolds | Will Your College Go Out of Business Before You Graduate? Cuban