- August 25, 2019
- Posted by: SosAdmin)
- Category: Working Capital Management
Ramesh owns the company that manufactures automotive components. For financial year 2018-2019 company’s turnover is 27 cr. Looking at confirmed orders in hand and other deals in the pipe-line, the company is expected to do business of 46 cr in 2019-2020
While this is exciting news for Senthil, but he is also worried at the same time.
Increase in revenue would also mean increase in funds required to manage working capital.
He does a quick calculation and come to a conclusion that he would additionally require 6 cr of funds to support the growth of the company.
He tells his finance team to contact bankers who can give this kind of money
If you carefully analyze this situation, the attention of Mr. Senthil shifted from growing the company to arranging money to support the growth
This above problem is faced by many companies
So the obvious solution is to get the funds, but there is a better and proactive approach to handle such situations.
In this case, 3 months or 6 months projected cash flow statement would have given Senthil a much clearer picture, like when the requirement of funds would actually arise. Also if he sees shortage of funds on monthly basis, the funding can come in phased manner. This could have also prompted him to negotiate better credit terms with supplier
Again with projected cash-flow statement companies can identify various opportunities to lower the fund requirement as well to reduce cost.
But this kind of exercise can only be performed by experts. Typically a CFO or financial controllers in the companies look at this aspects. However, most of the medium sized companies do not have access to such kind of expertize.
That’s where a Virtual CFO comes in; they do the job of a CFO, but at the fraction of the cost of full-time CFO
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