Cash, Revealing the State of Health of the Company


Cash: revealing the situation of the company
The level of cash flow is the consequence of numerous events which will have a direct impact on it. If certain causes lead to red, the existence of the company is then threatened.

Some causes can arise suddenly like the failure of a client. In this case, the scheduled collection (s) will not be made and the payment of deadlines, which are also already scheduled, will be difficult or even impossible. Depending on the size of the outstanding, the situation can suddenly become fatal for the company. The manager then has little time to make the necessary decisions.

Some causes settle progressively or even sneakily:

  • The extension of customer payment terms and its symmetry, the shortening of supplier payment periods,
  • The slowdown in an activity which reduces sales and therefore inflows,
  • The contraction in margins which means that the difference between receipts and disbursements is narrowing,
  • Inventories that increase because we continue to produce or buy while sales decrease,
  • The use of self-financing is a very good solution to siphon cash, etc.

Some causes are structural and are probably the most ill-accepted by those who experience this situation. This is especially true when the WCR has been underestimated, either during the activity start-up sequence or during a development sequence.

How to maintain balance?
The basic principle of good balance is that the company must live with positive cash flow. This means that the Working Capital Fund must cover the Working Capital Requirement (WCR). When this situation is not kept, the balance is maintained thanks to the external contributions of different natures. Some of these solutions are more or less fragile over time and are subject to the vagaries of the economic and financial environment. Some public aid exists to temporarily support the company’s treasury. These devices are to be mobilized in very specific cases.

Another basic principle: except in special circumstances, cash must be considered as a “weapon of war” to protect operations. The company must not self-finance its fixed assets and it must adopt this simple rule: long use = long financing; short use = short funding.

Finally, the regular maintenance of the cash flow statement is the first of the recommendations. Once in place, this tool makes it possible to be able to anticipate the impacts of such or such modification on the rate of its receipts and disbursements.

Support cash flow in daily operations: Finance in the short term
If short-term financing is necessary to cover the cash needs of your SME, different solutions are available to you. They can be distinguished into 2 main categories: cash loans and loans by mobilization of receivables.

Support cash flow in the development phase
Another rule is known to all but is often overlooked: the WCR is proportionally linked to turnover. The WCR increases in value if the turnover increases. This growth is even often accelerated because, during periods of growth in activity, the causes of dysfunction increase: everything goes faster, the sources of disorganization become more numerous, etc.

The satisfaction and the euphoria of the moment prevent us from seeing the difficulties that will arise in a few months. The deregulation of the WCR is the disease that lies in wait for the developing company.

The developing company may experience a period when the rate of its disbursements is higher than the rate of its receipts. While waiting for collections, the company must continue to keep its cash balance. Several devices can help him during this period. For companies responding to public orders, Bpifrance has set up Avance +.

This aid covers the company against any late payment for receipts from the public sector (semi-public companies, local authorities, public establishments, etc.). This, therefore, allows the company to supply its cash on a certain date.

Pre-financing the CICE with its bank or with Bpifrance is another way of supporting companies’ cash flow. The CICE (Competitiveness and Employment Tax Credit) is calculated based on the compensation of employees whose gross annual compensation is less than or equal to 2.5 times the minimum wage.

The amount of tax credit obtained under the CICE may represent a significant contribution of funds. Pending receipt of the CICE, the bank allows companies to pre-finance this amount, in order to support their cash flow. The company can thus take advantage of this revenue and incur development expenses while waiting to truly benefit from the effects of the tax credit.

As part of an innovation project, pre-financing under the CIR (research tax credit) is also possible with Bpifrance. This pre-financing fulfills the same objectives as the pre-financing of the CICE: to provide the company carrying out its research or innovation project with a contribution of funds while waiting to recover the benefits of the CIR.

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