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Jeremiah Wilkins
May 31, 2024May 31 at 3:28pm
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Discussion Thread: Company Cash Flow
As the CFO of a struggling company, I find the challenge of maintaining positive cash flow while developing a revolutionary product formidable. The phrase “Cash is king” highlights the critical importance of cash flow in sustaining business operations. Without adequate cash flow, even the most promising companies can falter (Plaskova et al., 2020). My task is to ensure that the company survives the next two years when our new product is ready for market while keeping stakeholders satisfied. A multi-faceted approach involving strategic financial planning, stakeholder management, and faith-based principles can be employed to keep the company alive.
Short-term Financial Strategies
Firstly, securing immediate funding is imperative. One approach is to seek bridge financing, which provides short-term capital to cover expenses until longer-term financing can be arranged, which could involve negotiating with banks or private lenders for short-term loans (Dorosh & Plish, 2021). Additionally, exploring venture capital or private equity might be viable options, especially if the product has a high potential for market disruption (Brealey et al., 2023). Another avenue is issuing convertible debt. This method allows the company to borrow money that can be converted into equity later and could be attractive to investors who believe in the long-term potential of the new product but are cautious about the immediate financial risks. It also mitigates the immediate cash flow strain, as interest payments on convertible debt are typically lower than traditional loans.
Moreover, tightening the company’s operational efficiency can free up cash, which includes renegotiating supplier payment terms, optimizing inventory management, and reducing non-essential expenses (Dorosh & Plish, 2021). These measures can help conserve cash without significantly impacting the company’s operational capabilities. Furthermore, streamlining internal processes and implementing cost-saving technologies can also improve efficiency and reduce expenditures (Dorosh & Plish, 2021).
Long-term Financial Planning
Securing partnerships or strategic alliances could provide financial support and additional resources for the long term. For example, collaborating with a larger company in the same industry could offer benefits such as shared research and development costs, marketing synergies, and access to broader distribution networks. This approach provides financial relief and enhances the product’s market entry strategy. Another long-term strategy involves equity financing. By issuing new shares, the company can raise substantial capital. Although this dilutes existing shareholders’ equity, it may be a necessary sacrifice to ensure the company’s survival and future growth. Communication with stakeholders about the new product’s potential exponential growth can help mitigate dilution concerns.
Stakeholder Management
Maintaining stakeholder confidence during this period is crucial (Oriekhova & Golovko, 2022). Transparent and consistent communication is vital. Regular updates on the company’s financial status, progress on product development, and strategic plans to secure funding can help build trust (Oriekhova & Golovko, 2022). Hosting quarterly town halls, providing detailed reports, and being accessible for questions can reassure stakeholders that the leadership team is competent and proactive.
In addition, aligning the stakeholders’ interests with the company’s goals can be achieved through incentive programs (Akhmetova et al., 2021). Offering stock options or performance-based rewards can motivate employees and management to work towards the company’s success. For investors, presenting a clear and compelling vision of the future, backed by thorough market research and realistic projections, can secure their support. In navigating these financial challenges, biblical principles can provide valuable guidance. Proverbs 21:5 states, “The thoughts of the diligent tend only to plenteousness; but of every one that is hasty only to want” (Holy Bible, King James Version, 1769/2008). This verse emphasizes the importance of diligent planning and prudent decision-making. As a CFO, embodying this wisdom means thoroughly evaluating all financial options, considering the risks and benefits, and making informed, deliberate decisions rather than hasty ones.
Furthermore, Philippians 4:6-7 offers reassurance in times of anxiety:
6 Be careful for nothing; but in every thing by prayer and supplication with thanksgiving let your requests be made known unto God. 7 And the peace of God, which passeth all understanding, shall keep your hearts and minds through Christ Jesus (Holy Bible, King James Version, 1769/2008).
These verses encourage a reliance on faith and divine guidance when facing uncertainty. One can find peace and clarity amid financial turbulence by integrating prayer and faith-based reflection into decision-making processes.
Conclusion
Ensuring the survival and growth of a struggling company requires a comprehensive approach that includes securing immediate and long-term financing, optimizing operational efficiency, and maintaining stakeholder trust (Akhmetova et al., 2021). By combining strategic financial planning with transparent communication and biblical principles of diligent planning and faith, a CFO can navigate the company through challenging times and towards a prosperous future.
References
Akhmetova, A., Aimagambetova, A., Oralbayeva, A., & Bisembayeva, G. (2021, April 15). WAYS TO OPTIMIZE THE CASH RESOURCES MANAGEMENT AT THE ENTERPRISE. The Bulletin, 2, 183-189. doi:10.32014/2021.2518-1467.68
Brealey, R. A., Myers, S. C., & Marcus, A. J. (2023). Fundamentals of Corporate Finance (11th ed.). New York, NY, United States of America: McGraw Hill.
Dorosh, O., & Plish, I. (2021). Cash Flow Planning at the Enterprise. Management and Entrepreneurship in Ukraine: the stages of formation and problems of development, 3(2), 21-28. doi:10.23939/smeu2021.02.021
Holy Bible, King James Version. (1769/2008). Holman Bible Publishers.
Oriekhova, K. V., & Golovko, O. H. (2022, May 10). CASH FLOW MANAGEMENT STRATEGY. Economy and Law, 64(1). doi:10.15407/econlaw.2022.01.089
Plaskova, N., Prodanova, N., Ignatyeva, O., Nayanov, E. A., Goncharov, V., & Surpkelova, A. (2020, September 26). Controlling in cash flow management of the company. Eurasian Journal of Biosciences, 14, 3507-3512.
BUSI 530 Discussion Thread 3
Cash Flow
Philip G. Maher
School of Business, Liberty University
Author Note
Philip G. Maher
I have no known conflict of interest to disclose.
Correspondence concerning this article should be addressed to Philip G. Maher.
Email: ************************* style=”margin: 12px 0px; font-size: 0.9rem; cursor: auto; color: inherit;”> 
BUSI 530 Discussion Thread 3
Brealey et al. (2023) detail multiple reasons why firms would benefit from having a stockpile of cash on hand and one of the primary reasons is to provide a runway that enables continued business operations while waiting for investments to generate cashflow. In our scenario, our firm has enough cash on hand to fund business operations for six months, with the expectation that our breakthrough product will begin to generate cashflow in two years, driving the need to secure funding for eighteen months’ worth of business operations.
Obtain Funding Through the Issuance of Debt
Brealey et al. (2023) illustrates three primary methods firms can increase their cashflow that include internally generated funds via plowing back profits, issuing common stock, or issuing debt. Since our firm is not expecting to generate cashflow from our breakthrough product for another two years, plowing back increased portions of our profits is not a realistic option, which will drive the focus towards equity financing through the issuance of new shares or debt financing through the issuance of bonds.
Huang and Ritter (2021) emphasize that the firms will seek external financing to either increase their cash balances or to rebalance their capital structure and determined that the vast majority of firms utilize external financing due to their shortfalls in cash. Additionally, Huang and Ritter (2021) illustrate that firms that are routinely profitable but faced with short-term cash needs tend to issue debt, whereas firms that are unprofitable and research and development (R&D) intensive favor equity issuance. There are a few strategic reasons to issue debt versus equity when raising cash for short-term needs that focus on the tax benefits associated with debt, being able to write-off debt on taxes, and the signal to investors that the stock is not viewed as overvalued and the company anticipates being able to pay off the debt (Huang & Ritter, 2021).
Understanding that my firm needs cash to support short-term business operations, with the anticipation that our firm will be profitable once the breakthrough product is launched leads to me favor issuing debt over equity to raise our cash on hand. Therefore, I will move forward with the issuance of corporate bonds to fund our business operations.
Keeping Stakeholders Happy
In an attempt to keep my stakeholders happy, I will need to articulate the belief that the opportunity cost of capital through an investment in my firm will at minimum, match the return of an investment with similar risk. I will focus on my stakeholders happiness through transparent communication that articulates our short-term financial challenges and the strategic plan, focused on our breakthrough product, that will lead our firm to financial success.
Additionally, my communication will include detailed timelines and financial expectations that will manage investors expectations and increase their confidence in the success of our new product, and ultimately the firm.
Biblical Application
Proverbs 21:5 states, “The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty” (English Standard Version, 2016). The bible verse highlights the importance of firms diligently planning for the future by ensuring they retain enough cash reserves to sustain business operations when faced with a future outlook of negative cashflows. Additionally, careful planning and preparation through researching the most advantageous methods to obtain funding will not only ensure the financial success of a firm, but it will also instill confidence and trust in stakeholders that the firms leadership is competent and capable of making sound financial decisions.
References
Brealey, R. A., Myers, S. C., & Marcus, A. J. (2023). Fundamentals of corporate finance (11th ed.). McGraw-Hill.
English Standard Version. (2016). Proverbs 21:5 ESV – The plans of the diligent lead surely – Bible GatewayLinks to an external site. (Original work published 2001).
Huang, R., Ritter, J. R. (2021). Corporate cash shortfalls and financing decisions. The Review of Financial Studies, 34(4), 1789-1833. https://doi.org/10.1093/rfs/hhaa099Links to an external site.
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