The Last Word: Improving cash flow

Paul Stewart


PS Capital Partners, LLC

205 E. Wisconsin Ave., Milwaukee

Industry: Private equity



Paul Stewart is a principal at PS Capital Partners, a Milwaukee-based private equity firm that makes long-term investments in manufacturing and processing firms in the upper Midwest. Stewart has some insights about how privately held businesses can optimize cash flow in today’s challenging markets and in doing so, maintain accessibility to bank debt.


“Cash flow optimization sounds simple, but in practice is hard to achieve. It takes time for a company to implement dramatic changes that affect revenue and/or costs that result in improved cash flow." The following is a simple tool that has helped improve cash flow in several companies:

  1. Improve revenue forecasting capabilities of the company by developing a rolling 12-month ladder forecast for revenue instead of a yearly plan. With a rolling 12-month ladder forecast, one forecasts revenue for the next 12 months at the end of each month, placing the team on the path of continuous improvement in forecasting.   
  2. From the rolling 12-month revenue forecast, the company can then forecast cash receipts for a given month based on the payment history of its customers. As data emerges, so does the ability to accurately predict a range of cash receipts for a given month.
  3. The team forecasts monthly cash disbursements based on anticipated revenue, being sure to include items such as real estate tax, utilities, payroll, rent, etc..
  4. Net cash can now be forecast on a monthly basis with a corresponding statistical range of accuracy (the 30-, 60- and 90-day outlooks are the most accurate). Most importantly, management has a dynamic tool for forecasting net cash and can take action to manage cash in anticipation of positive or negative swings in revenue.

“Being able to anticipate cash needs is rule number one for assuring a strong bank relationship, as most bankers do not like surprises. What gives a banker comfort to extend additional credit or be patient in a credit is their assessment of the ability of the management team to deliver. Being able to communicate the company’s future cash needs with confidence (and having a track record to back it up) is vital in gaining the bank’s support."

“Remember, banks are in business to make loans, and as in past recessions, banks will be the first providers of capital for companies as we emerge from this recession. Start planning now!”


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