Flashing the Cash

Top of the seventh in Toronto’s SkyDome – whoops – Rogers Centre. I had done my seventh-inning stretch – for good luck. Sox down, 3-0 in the BlueJays’ home opener. Two out, two on. J.D. Drew coming up for the Sox. I glanced at my scorecard. He’d struck out swinging in the second and again in the fifth – on just six pitches.

I looked up at the mammoth scoreboard in center field. It was still cycling through the video of the last play, then the close-up of Drew, then the close-up of Toronto pitcher Shawn Marcum. Finally it let everyone else in the stadium know what I had known 30 seconds earlier – Drew had struck out swinging in the second and fifth innings.

All the Toronto fans behind me were thinking, “Third out.” Not me. “He’s due,” I said to the two Sox fans from Ann Arbor, Michigan sitting beside me. Two balls. Then two strikes. Then out of the park. Just as I had willed it – score tied. Good thing I’d had the extra 30 seconds to invoke my karma.

Unfortunately, the karma was good for only one application. The Sox gave it up in the home half of the inning and lost 6-3. So much for my one break in an otherwise intense client weekend in Canada.

I am an inveterate scorekeeper. As far back as junior high (and that was a while ago) I used to hustle home from school to score the last half of the Sox’ games (2:00 p.m. start most weekdays) over the radio. It kept me in the game – strikeouts, ground outs, fly balls, I counted them all. Of course, it was critical to complete my post-game analysis to deliver to my dad when he arrived home from work.

Years later, I’m still keeping score, and it still keeps me in the game. But it’s not runs, hits, and errors (except on Friday nights in Toronto); it’s receipts, disbursements, and cash balances. My clients need to know the score. For the largest of them, with $30MM in annual revenues, the one number that provides the financial pulse is the operating cash balance: as long as it stays above $2MM, there’s enough time to respond to any change in the business.

For another client, a recent start-up, it’s touch and go. Are receipts this week going to be adequate to meet the bi-weekly payroll on Friday? Which vendor payments will we be able to postpone until next week? How many of our collection calls last week will result in cash coming in today or tomorrow?

Even if immediate cash doesn’t seem to be an issue – sales are solid, profit margins are good, everyone is getting paid – circumstances can change overnight. All it takes is a little uncertainty in the environment to boost the average collection period from 40 days to 50, and all of a sudden your receipts are down by 25% in a month. Or the Bank calls to remind you that, per contract, your working capital line has to be reduced to zero for 30 days each year and the year is almost up.

For most of my clients, the equivalent of the baseball scorecard is the cash flash report, often called the dashboard. Produced weekly, usually on Monday, by the accounting department, it provides top management with the following nine-inning summary:

  1. Cash balance on the operating books (as distinct from the bank’s balance) as of the close of business the previous day, including availability on the loan line. [In tight situations, getting the bank’s balance may also be important.]
  1. Total cash in during the past week, including major receipts (greater than 25% of the week’s total).
  1. Total cash out during the past week, showing payroll and related expense separate from other disbursements.
  1. Revenue invoiced for the past week, and for the month to date, and for the year to date. Also, at the end of each month, monthly sales compared to budget and/or to last year.
  1. New business booked and added to the backlog.
  1. Receipts expected for this week, based on anticipated customer deposits, plus input from collection calls and historical collection experience.
  1. Disbursements planned for this week, perhaps supplemented by a cash requirements report of all expected payments, forwarded for final approval.
  1. Extraordinary receipts (e.g. investment funding) or disbursements (e.g. for capital purchases).
  1. Transfers to/from the bank loan line or investment account, last week and this coming week.

Supplemental information (extra innings?) such as the following might be provided periodically:

  1. Sales backlog total and/or sales pipeline report.
  1. Overtime hours incurred.
  1. Aged payables and aged receivables (especially at end of month).
  1. Monthly income statement, balance sheet, and cash flow vs. budget and last year.
  1. Payroll changes – hiring and termination.

By compiling this in an Excel file (see sidebar) and adding a new column each week, Accounting develops a permanent record of cash flow. Using the cellular comments function, the reporter creates a further historical record of exceptions and anomalies, which can be useful in a year-end review leading to next year’s budgeting.

Unfortunately for the Red Sox, there was nothing in the bank last weekend in Toronto. The scorecards showed them losing all three games. In my dad’s day – heck, in most of my days – we’d already be saying “wait ’til next year.” But this is 2008. Who needs a cash flash? Beckett, Manny, and Big Papi are money in the bank.

Alligator Bites

On several occasions in recent months I have flown the new discount airline Skybus from Portsmouth, NH (former Pease Air Force Base) to Florida. They offered $100 one-way tickets, free parking, no air traffic congestion, and a la carte services (e.g., pay for pillows). As an introductory promo, they featured ten seats per flight at $10. At that price, some of my fellow passengers were buying tickets on spec. I figured it couldn’t last.

It didn’t.

According to the Wall Street Journal (4/7/08), “Skybus Airlines, a low-fare start-up carrier, shut down over the weekend, becoming the third U.S. airline in a week to cease operations in an industry being pummeled by high fuel prices and the weak economy.

“…The company quit flying Saturday with little warning after completing its Friday flights. A spokesman said that the board decided Friday to pull the plug and the company plans to file for bankruptcy-court protection Monday… ‘This all happened very quickly,’ he said.”

A strong hint of things to come occurred two weeks earlier when CEO Bill Diffenderffer stepped down, replaced by Mike Hodge, 35, who had served as the company’s chief financial officer for a year after a stint as managing director at Tiger Management, a New York-based hedge fund that provided equity financing for Skybus.

According to the 3/24/08 press release, Diffenderffer was returning to the writing career that he had left in 2005 to help launch Skybus. C. Robert Kidder, chairman of Skybus’ board, said in a statement that Diffenderffer “feels that now is the time for others in the organization to take the lead in moving Skybus forward.”

In the world according to Diffenderffer,

“Just as any business goal needs an end vision, so too do managers need an end vision of what they want to become. It is not enough to just want to become vice president of sales or CEO. Who are you when you get there? Managers need to hold in their minds a leadership model to which they adhere during challenging times. This book will show you how the characteristics of a samurai can make you a powerful leader. It will show how acting ‘samurai’ can directly promote success in a business environment. It will show how a manager can become a samurai in today’s business world, vanquish the competition, and rise all the way to CEO if that’s what the manager wants.”

The Samurai Leader, by Bill DiffenderfferChapter 1, Page 1

Don’t sell that man a sword.

Draining the Swamp

Instead of reaching for the mouse in navigating around an Excel spreadsheet, consider using these keyboard shortcuts:

CTRL + (
Unhides any hidden rows within the selection

CTRL + )
Unhides any hidden columns within the selection

CTRL + &
Applies the outline border to the selected cells

CTRL + _
Removes the outline border from the selected cells

CTRL + ~
Applies the General number format

CTRL + $
Applies the Currency format with two decimal places (negative numbers in parentheses)

CTRL + !
Applies the Number format with two decimal places, thousands separator, and a minus sign (-) for negative values

CTRL + –
Displays the Delete dialog box to delete the selected cells

CTRL + :
Enters the current time

CTRL + ;
Enters the current date

Selects the entire worksheet

Applies or removes bold formatting

Copies the selected cells

Uses the Fill Down command to copy the contents and format of the topmost cell of a selected range into the cells below