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Managing Cash Flow

An Operational Focus

Rob Reider

Peter B. Heyler

John Wiley & Sons, Inc.

This book is printed on acid-free paper.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Reider, Rob, 1940–

Managing cash flow / by Rob Reider, Peter B. Heyler.

p. cm.

ISBN 0–471–22809–5 (acid free)

1. Cash management. I. Heyler, Peter B. II. Title.

HG4028.C45 R453 2003

658.15'244 – dc21

2002012147

Printed in the United States of America.

10987654321

Contents

About the Authors

Acknowledgments

viii

Introduction

Chapter 1: Understanding Cash Management

Cash Flow Basics 12

History, The Fed, and Float 21

Bank Issues and Concerns 28

Conclusion 33

Chapter 2: Managing Cash Flow — Receipts and Disbursements

Using the Balance Sheet 36

Cash Receipts 39

Cash Disbursements 58

Conclusion 67

Chapter 3: Planning and Budgeting

Relationship between Planning and Budgeting 71

Strategies for Competitive Advantage 74

Strategic Planning Process 76

Short-Term Planning 81

Conclusion 94

Chapter 4: Analyzing the Sales Function

Cash Management Study 95

Purpose of the Sales Function 96

Conclusion 122

Chapter 5: Cost Reduction Analysis Procedures

123

Benchmarking Strategies 124

Activity Based Costing Principles 152

Conclusion 174

Chapter 6: Analyzing Non-Value-Added Functions

176

Looking at the Accounting Function 177

Choosing What to Analyze 179

Identifying Goals and Basic Business Principles 182

Prioritizing Activities 184

iii

Managing Cash Flow

Financial Reporting 185

Developing the Cash Management Analysis Survey Form 188

Compiling the Data 188

Analyzing the Data 192

Organizational Issues 198

Budget Analysis 200

Analysis of Functional Costs 202

Analysis of Accounting Operations 206

Activity Based Costing Applications 211

Developing Recommendations 213

Specific Recommendations 214

Organization Recommendations 233

Other Areas for Review 235

Conclusion 237

Chapter 7: Investing, Financing, and Borrowing

239

Investing Excess Cash 239

Financing Sources for the Business 250

Borrowing for Cash Shortfalls 251

Conclusion 262

Chapter 8: Planning Cash Flow

263

Cash Flow Planning 263

Managing Cash Balances 276

Cash Planning Approaches 279

Conclusion 282

Chapter 9: Controlling and Analyzing Cash Flow

285

Brief Look at FASB 95 285

Cash Flow Projections — Methodology 287

Cash Flow Reporting and Controls 293

Interpretation and Analysis of Cash Flow 300

Conclusion 322

Afterword

323

Appendix A— Cash Study: Managing Cash Flow

325

Appendix B—Cash Conservation Checklist

341

Index

347

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