A Planning Story: How we are going to keep the cash flowing, even as we lose money This true story (first written about a year ago) illustrates how Fast-Forward's TLM system can facilitate the financial planning process... I recently completed the preliminary 2009 plan for a client. We had started by assuming a sales decline for 2009, with a modest cut in expenses. The plan was no good. It told us that if this guy doesn’t change the way he is doing things, his sales projections in 2009 are going to result in his company running out of money about six months from now. Fail! The new plan includes two fundamental changes to his management strategy for 2009:1) increase gross margins2) decrease inventoryBecause he’s planning a sales decline, he can maintain profits only by cutting expenses and/or raising prices. Cutting expenses almost always means getting rid of people. He doesn’t want to do that. It is actually easier (and a lot more fun) to raise prices. Of course, he’ll have to do it strategically. You can’t just go out and charge more for a plasma than everyone else – then sales would really go down! But a couple more points on speakers, an increased allocation for wire and parts on every job, and bumping labor a bit… We added 2 points of overall gross margin and his customers won’t even notice. We’re going to change his proposal format in hopes that we can add another two “unnoticed” points. In his new plan, that adds up to almost $100K in additional annual profit. Even with the increased margins, though, the plan shows a small loss each of the first six months. The company is going to need some cash before it returns to profitability in the second half of the year. We determine that there’s almost $100K locked up in excess inventory. If we can bring that down over the first six months, it will provide enough cash to both cover expenses AND pay down his line-of-credit at the bank (which also reduces his interest expense). By carefully identifying how much inventory he will really need, and when, we have a plan that helps cash-flow the company, even while the company is losing money. And in the second half of the year, when he’ll need to bring his inventory back up, he’ll have enough available credit line to allow taking all available discounts on his vendor bills. RESOURCE Using the Top-Line Management System, we were able to generate the numbers and analysis for this plan in a matter of hours. Visit the TLM Resources page of this website to learn about TLM worksheets that help companies easily project and analyze their sales & profitability.