In these times, cash is king. Achieving better cash flow starts with sales and marketing. A tough economic environment means there are more businesses looking for the same customer. Taking a more aggressive approach to finding more sales leads that can be converted into sales is a critical component to increasing your cash flow. You might even have to shave the selling price to secure the sales, so knowing your profit margins is essential.

Once we secure the sales it is time to be firm on how and when you will get paid. This is one of the key areas where cash conversion efficiency begins. Get cash at the time of sale if possible. Most businesses sell on credit, typically with terms of payment in 30 days. The days accounts receivable are outstanding is one of components of the cash conversion efficiency ratio. The faster or fewer number of days sales outstanding, the better. This generates cash needed for the business.

You have to purchase materials or goods that are recorded in inventory before converting them into sales. Since you likely paid for these goods based on credit of 30 days net and perhaps a discount of 1 to 2 percent if paid sooner than the terms of credit. The more effectively you turn your inventory into sales by reducing cycle time is crucial. Likewise, use your vendors as a bank by adhering closely to the established terms of sale without losing the discount offered.

Your cash conversion is determined by combining the average number of days cash is tied up in accounts receivable plus the average number days cash is held in inventory less the average number of days of payables. The smaller the number of days contained in the cycle the better.

Some additional metrics that should be monitored include:
• Cash as a % of Sales
• Gross Margin %
• Selling, General, and Administrative Expense as a % of Sales
• Net Working Capital as a % of Sales

The faster your cycle time, the faster you will convert your sales into cash. A component in achieving faster cycle times is to reduce the number of days required to send out your sales invoices after goods have been shipped or services rendered.

A couple of good references on how cash conversion efficiency is used include Go with the Flow published on CFO.com and Cash Conversion Efficiency – A Great Outcome published by Management Mythbusters.

Focusing on these basics of accelerating cash flow will help keep your business healthy in these turbulent economic times.

I am sure many CPAs have seen IFRS and heard there was going to be a convergence from Generally Accepted Accounting Principles (GAAP) to international accounting standards. But how many of them realize the magnitude of what lies ahead? I was involved in teaching SOX and internal control standards under Section 404. This gives me a pretty good idea of the effort required to make the shift. Since this web site and blog is geared to providing current and cutting edge information for businesses and CPAs it made sense to get on the IFRS band wagon sooner rather than later.Why all the fuss? Well IFRS accounting standards have been adopted by 113 countries and by 2011 it will be the standard used by 150 countries. The United States is immersed in global business and investors need to have the ability to evaluate investments around the globe. This makes a pretty good cased for a single set of globally accepted accounting standards. As was the case with SOX, CPAs are not yet prepared to shift to IFRS. Because of the global implications, CPAs in the United States will need to be capable of preparing and interpreting financial statements using IFRS.

The education process will be massive. It will impact investors, CPAs, and other specialists such as actuaries, and professional associations. Comprehensive education programs will be needed across the board. The AICPA has launched an initiative to help educate and pave the way for 2010 when conversion will likely be a reality.

In drafting this post the potential impact of the transition became starkly real. Colleges and universities will need to revise their curricula to accommodate the new standards. The CPA exam will need to be revised. Many CPAs could find themselves in situations where clients will demand adoption of IFRS. Those CPAs who make the effort to educate themselves will be on the winning end of the conversion game. My prediction is there will be more unprepared accountants versus those who make the leap.

This post is just the beginning and a way of sounding the alarm. I will be busy in the months ahead developing training material. Plus, we will be offering regular and current information on this site to help with the education process.  I’m looking forward to the journey, so sign up for my RSS feed and newsletters.  Let’s saddle up and enjoy the ride.