This module covered the information that is found on a cash flow statement, as well as how to properly implement cash management techniques. With this in mind, consider the following scenario.

XYZ Company is a small company with about 25 employees. The company has sales of $2.5 million annually, with expenses of $1.75 million annually. The companys business is seasonal, with most of the sales occurring over the warmer months, April through October. During this time, the company earns about 80% of all revenues. The company is still working to understand the cash flow patterns of this business and how it impacts their working capital.

The sales team, whom often visits in person with clients, is authorized to accept payments at any time from these clients. When this occurs, the salesperson provides a hand written receipt to the client for the cash or check that is received. The salesperson then gives the payment to one of the three members of the accounting team. Unfortunately, salespeople often forget about payments received, and there is a delay between when clients hand over a payment and the accounting team receives that payment. Once the accounting team member receives that payment, they post the information to the clients account and submit the payment to the bank. Cash payments occasionally walk away and are not noted in the clients account unless the client calls to complain. Bank deposits are made on a monthly basis.

The head accountant has noticed that the cash coming in is not enough to cover the monthly bills of the company. However, the company is turning a profit. Additionally, when the owner sees the income for the business at the end of the season, he tends to spend it all immediately, drawing down the account so that payments such as payroll become problematic by the end of the slow season in March. Cash management could use some improvement, but no one is certain what steps should be taken to improve the situation.

With the information from the scenario, address two of the following questions. Outline any additional assumptions you make about the situation in your posting.

Evaluate the internal cash controls employed by the company. Are any controls lacking or in need of improvement? What suggestions do you have for the company in terms of their internal cash controls? Use references to support your recommendations.

Consider the cash shortfalls of the company. What recommendations would you offer in order to improve the cash flows for the business? Outline an example of a company that has used your suggestion and the impact that the company has seen in regards to their cash flows.

Conduct some research on seasonal businesses. Being a seasonal business, what challenges do XYZ Company have to overcome in terms of managing their cash flow? Identify at least 3 challenging areas. How would you suggest that the company overcome these challenges?