MEMORANDUM

Memorandum



Memorandum

DISCLAIMER

Cash flow is often more critical to the growth of a small business than profits. The most important factors to consider when optimising business's cash management are diligence and the right set of budgeting tools and projections. "Construction firm" at all times with regard to all the references in this document, or any other addendum attached thereto shall mean the Unit, Prime Minister's Department. Construction and their employees and advisors make no representation or warranty and shall incur no liability under any law, statute, rules or regulations as to the accuracy, reliability or completeness of the document. Construction firm may in its absolute discretion, but without being under any obligation to do so, update, amend or supplement the information in this document at any stage. This document and the information contained herein are confidential and for use only by the person to whom it is issued. It may not be copied or distributed by the recipient to third parties (other than in confidence to the recipient's professional advisor). In the event that the recipient does not continue with the involvement in the Project in accordance with the document the information contained in the document shall not be divulged to any other party. The information contained in the document must be kept confidential.

Cash conversion cycle (CCC) is a measure of cash turnover of an organization with respect to three supply chain activities, purchase, internal operations, and sales. Shorter CCC is desirable as it indicates better utilization of the organization's cash resources. The CCC is the sum of days in inventory and days in receivables subtracted by days in payables. In Özbayrak and Akgün (2006), the authors evaluated the CCC from three simulated manufacturing planning and control systems under the same master production schedule but with four dispatching rules. The result showed that a JIT-based pull system with no WIP buffer produces the shortest CCC. Lo et al. (2009) traced 695 US manufacturers which received ISO 9000 certificate and found that those firms had significant improvement in their CCCs one year and three years after ISO 9000 implementation, mostly from shortening the days in inventory.

1. General

Short-term cash flow projections, such as those that are weekly or monthly, and longer term projections that look at a company's growth over one year, three years, or even five years are key to determining a business's current cash position. This is especially true if a business is experiencing fast growth or weathering tough times. Savvy business owners review past cash flow statements to glean wisdom on past decision-making and trade-offs made, among other notable trends, to be able to make more accurate projections and maneuver as much cash out of their balance sheets as they possibly can. Inventory and accounts receivable (credit accounts, credit you extend to customers) are often significant drains on a business's cash. For example, once you understand if you are running out of inventory too quickly or if your customers are taking too long to clean up their accounts, ...