Figurski said he prefers to use the "Bizcomp" method to calculate cash flow. He used a sample balance sheet to show the affects of cash flow when a company moves its 45-day accounts receivables to 60-day. "This creates a serious cash flow problem," Figurski said. In his example, the move to 60-days put a company in a three-month negative cash flow during three summer months - all because of an extra 15 days added to accounts receivable.

He also told MIACCA members about a "what-if" software program called Income Statement Projection System (ISPS) whereby they could plug in variables to determine how their balance sheet compares to normal, current averages, as well as comparing to national averages of similar businesses. "Once you have these what-if scenarios, go back and plug them into your cash flow," he said.

His example showed the immediate impact on the income statement by changing labor rates by five dollars. The impact was dramatic.

"It doesn't really matter what other contractors are doing or charging," Figurski said. "These figures show what you should be charging based on your own calculations."

For more information, contact Figurski at gary@tcgcpa.com.

Publication date: 09/04/2006