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Few would argue against the importance of getting a physical every year, along with a flu shot to build your body’s immunity. Likewise, it’s also a good practice to check your businesses’ health periodically, so you can be sure it’s in prime shape in the event you need a shot of capital.

Certainly cash flow management is a top priority in any business. But it’s never more important than when access to capital is as limited as it is today. And nobody will give your business a closer physical exam than the banker, when you knock on his door, hat in hand.

It’s common knowledge that accurately prepared cash flow statements and forecasts are the basic tools required to successfully manage money in or out of your business. That’s probably how you’re making sure you have sufficient capital to meet the businesses’ daily demands.

But while cash flow statements are a good start, few if any companies are successfully managed by statements alone. Those with more than a few million in revenue need broad insights into their business to optimize cash flow and identify issues early on.

Can you quickly assess your businesses’ health? Are you ahead of the pack or watching growth plateau? See where your business stands now.

TAKE THE TEN-MINUTE CASH FLOW HEALTH QUIZ

SAP is in constant contact with hundreds of thousands of business executives around the globe, both to support our 82,000 SME software installations, and also to support their future business needs.

We continuously refine our methods and software to help our customers understand, manage, and analyze their cash flow. One recent outgrowth of our initial consulting process is a practical list of questions in seven categories. We call it our “Ten-Minute Cash Flow Quiz.”

The intention behind the quiz is to help C-level executives assess the most pressing cash flow issues in our first meeting. Do you have ten minutes? Get a head start and take the quiz. You might be surprised at what you learn or at what you can’t answer. The more questions you can’t answer accurately and immediately, the more you—and your banker—have to wonder about the health of your business.

Profit Situation	Answer
Do you have positive and growing results year on year?
What external and internal factors affect your profit margins?
Did your net sales grow last year?
Is your current and near-term order pipeline healthy?

Maintaining profitability is both an aspiration and a challenge. You must know what’s really going on in your books at all times, and be able to watch every financial event with a sober filter. If you have the right profit strategies, you can often outperform larger competitors.

Liquidity Situation	Answer
Do you have a positive cash flow?
Are you carefully managing your days sales outstanding (DSO)?
Do you see a negative change in your bad debt allowance?

Cash flow flexibility is king. Power exists in your ability to pay off your short-term debt obligations when needed, or take advantage of early payment discounts. But no matter what the economic conditions might be, it is always wise to refine your credit policies, selling processes, and collection methods to minimize days sales outstanding.

Health of Your Capital Structure	Answer
How high is your debt based on service to cash flow ratio?
Has the ratio increased or decreased year over year?
Changes in debt vs. operating income?

Put simply, your company’s reasonable use of debt and equity to support your key business operations is a signal of strength to financiers and trade partners. A healthy capital structure reflects a low level of debt and a high level of equity.

Financial Risks and Covenants	Answer
What percentage of your receivables are paid after the due date?
Do your loans contain covenants you need to consider?
What are the chances that you cannot comply to these covenants?
How many customers represent more than 2 percent of your net sales?
Do you know if any of your customers are experiencing cash flow problems of their own?

Lenders evaluate several risk factors that could threaten your financial health, including cash flow, covenants, and customer base. The more risk, the more performance standards will be placed on your loans, and the higher the interest. If you decide to take on financial covenants in order to get a loan, you should be aware of the risk factors that could put your business in “double jeopardy.”

Management, Processes, and Systems	Answer
Are you able to provide a forecast of revenue and costs for the next year?
Are you continuously monitoring your liquidity using a cash forecast?
Do you continuously monitor your cash flow situation and share this information with your bank on a regular basis?

Today, the ability to rapidly generate accurate financial forecasts is more important than ever. For your company, the benefit is greater ability (and agility) to respond to your internal challenges, and broader market dynamics. For your creditors, it signals that your house is in order, and that you have reliable financial controls.

Cash Flow Management Tools	Answer
Do you have a single software package to manage cash flow?
How long does it take for you to prepare cash flow forecasts?

WHAT THE ANSWERS TELL YOU

The Cash Flow Health Quiz is a starting point for further analyzing your cash flow situation. Your answers can’t be rolled up into a simple numerical score, but they can identify areas that need attention. As you review your answers, ask yourself:

What percentage of the Cash Flow Health Quiz questions was I able to:

• Quickly and confidently answer
• Provide supporting data and documentation required by banks
• Say you are satisfied with the answer

Then look at the following grid for a gut check that indicates how well or poorly your business systems are providing the insight necessary to steer your company forward.

A PRESCRIPTION FOR BETTER BUSINESS HEALTH

While every business and industry is unique, optimal cash flow management practices have one thing in common: The need to have complete visibility into current and future cash requirements and current cash positions.

SAP’s cash and liquidity management solutions are built on 35 years of experience streamlining financial processes for global companies in every industry. With more than 1,000 industry-specific solutions that support your end-to-end processes, SAP lets you develop timely, accurate forecasts to help you achieve better control over your cash balances.

And SAP’s robust analytics and reporting features give you the full picture, so you can make fast, informed decisions to manage liquidity and cash with confidence. With SAP cash and liquidity management capabilities, you can help:

Drive the health of your cash flows. SAP solutions help you gain control of your accounts receivable (A/R), so the amount and timing of cash flows are not compromised. For example, solutions for managing billing disputes can help you significantly reduce days sales outstanding (DSO).

Increase visibility into the sources and uses of cash. Cash management solutions give you deep insight into cash balances, as well as the ability to precisely match the sources and uses of cash. You can improve forecasting to power better decisions faster.

Increase control over cash on hand. SAP software supports electronic bank interfaces, so you can help reduce manual reconciliation processes and gain insight into global cash positions in real-time. You can also tap features that support in-house banking, centralize cash management functions, and reduce the complexities of multiple banking relationships fragmented across geographies.

To see SAP Business One in action, watch this video.

How can I find out more about SAP Business One?

Contact Blue Ocean Systems’ team of ERP specialists who can guide you in finding the best SAP Business One solution for your organisation.

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