For CFOs, One Dollar in The Hand is Worth Two in The Valley


Nothing spells disaster quite like running out of cash. In Silicon Valley, running into cash problems has always had a simple solution: “Raise more money.” As a cash-flow approach, regular fundraising has fared pretty well for companies over the past decade (and then some).

Then came COVID-19. Since the virus outbreak, strong and predictable cash flow has become more important than ever, and CFOs are increasingly aware that they need enough cash to get through a pandemic that has no clear end date.

In times of economic uncertainty, cash is truly king, and the pandemic pulls the wool back from what most CFOs already know: that cash flow is one of the most important metrics used to evaluate a company’s future success. Companies that can manage cash flow effectively grow faster, command higher valuations, and operate a stable business with fewer layoffs than those who don’t.

Let’s take a look at what cash flow performance is, levers that businesses can pull to free up or strengthen cash flow, and how companies can measure cash flow as a key business metric.

Cash flow performance and its effects across the business

Cash flow performance measures how efficiently an organization manages cash across the business. Done well, it allows the business to measure the cash flow impact of every part of a business: every marketing campaign, each sales team, every business unit, every trade show, and every R&D project.

Cash flow is more than a financial exercise. In times of crisis, it can be used to make tough business decisions by helping business leaders understand where the most pressure is being put on cash reserves. They can then determine the right places to reduce costs with the lowest risks to the business.

In the case of COVID-19, company layoffs and furloughed workers have become a common response to preserving cash flow. Payroll expenses put a lot of pressure on cash flow, and re-evaluating workforce planning strategies can be a quick way to free up cash. Depending on the company and its current cash flow situation, newly revised workforce strategies focused on protecting cash could include hiring freezes, eliminating contract employees, furloughing workers, temporarily reducing salaries, and so forth.

Because cash-flow performance is driver-based, finance leaders can evaluate different scenarios to adjust how much cash is coming into or going out of the business. Headcount and workforce planning is one way to make these kinds of adjustments. Collections is another.

Pulling the right levers to collect cash

Collecting cash faster is critical to cash flow performance. Yet, collections activity can vary from month-to-month, and large fluctuations can leave finance leaders scratching their heads as to why. More and more, we’re seeing accounts receivable (AR) teams turn to automation to speed up the collections process.

Here’s why: AR tools can help companies collect cash more quickly and easily by automating key processes and providing critical insight into currency exposures. Tools like Tesorio use data from ERP systems to provide AI-driven recommendations for when to collect money and from which customers.

Companies can use these predictions to manage, predict, forecast, and collect cash in a much more streamlined and intelligent manner. This insight helps business leaders make better-informed strategic and tactical finance decisions in times of uncertainty. For example, companies can adjust different levers to monitor and control cash flow timing and mitigate the risk of cash flow fluctuations.

Cash in hand is a key business metric

Despite it being a make-or-break situation for companies, cash flow performance often takes a back seat to other priorities in the office of finance. But what many fail to realize is that cash flow performance is more than profit and loss – it’s more than the final number on a cash flow statement.

Here’s why: Every business wants to grow faster with less volatility and more predictability. Likewise, every CFO and audit committee wants the estimates they give to the street to match the quarterly earnings. While profit is an opinion, cash flow is a fact.

So, how can companies measure and act on cash flow performance? Here are a few places to start.

  • Make cash flow performance a KPI. Cash flow performance matters for every single company – regardless of whether they are a large, profitable company, backed by private equity, or supported by venture capital. CFOs need to run the business for cash flow to optimize cash flow performance.

  • Invest in a dedicated cash flow toolset. Today, credit & collections, payables, foreign exchange, and cash flow forecasting teams that have a purpose-built cash flow tool to collaborate and optimize their work, rather than rely on using Excel or Word, are able to make better-informed decisions, faster.

  • Spread the benefits outside of finance. The benefits of cash flow performance software go well beyond just the finance team. Companies who use cash flow performance to run the finance organization often find that other parts of the organization, such as sales and customer services teams, are often eager to participate.

To learn how you can better manage and leverage cash flow in order to provide your business with less stress and a more accurate view into your runway, request to see Tesorio in action.