Implementing Short-Term Working Capital Strategies
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? You are the CFO at a manufacturing company. Your company is anticipating an impending cash crunch. What short-term working capital strategies might you employ? Why? In what order would you implement them? Why?
? What part of working capital management does a company have the most control over? Why? What does a company have the least control over? Why?
? What is the most important part of cash flow planning? Which variable must be determined accurately? Is it healthy to have a cash balance at the end of each month? Why or why not?
? What are the main inputs needed to begin the financial portion of a strategic plan? Who is responsible for providing those inputs? Why are these inputs so important? How would you use these inputs to create the plan?
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The solution discusses implementing short-term working capital strategies.
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The short-term working capital strategies are listed in the order of their use:
1. I would first work to ensure that the management of the inventory was more efficient. Managing inventories are in the control of the company and is a company variable that can be immediately addressed. This is because inventories are typically in house and do not require third parties for storage, maintenance, or distribution. This would be the first short-term working capital strategy I would address because there is also a high possibility that making the management of inventory more efficient the company is going to streamline a process, but will be saving money from making sure the inventory is stored when and how it's supposed to, sent out when and to the place it's supposed to go, decrease on loss of inventory from improper handling and storage, and also potentially cut down on in-theft that may be occurring where the management of inventory is less than optimal. The reason why this strategy is first is because it can be implemented immediately and has a high potential return concerning the benefit to the company.
2. I would also take a look at in-house spending. This may be a little tricky at first because there may be third parties involved, such as vehicles being leased if the company does not own their vehicles, but it should be able to be implemented over short-term. Some of the spending that may have to be more properly managed or completely gotten rid of would be money spent on dining, flying, leasing vehicles, fuel, expense accounts, and petty cash. The company would have to take the time to draft a letter or email, or put together a meeting or phone conference so that employees would understand why these monetary policies were being put into place and limit the chance of employee unrest or a decrease moral. Once the employees are on board with the new monetary policies the implementation should be easier as compared to cutting the employees out altogether. Some of these monetary policies would include no dining for employees who are courting customers or traveling, unless it's a cheap restaurant and the company would set a lower ...
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