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Cash management capabilities

Do you have strong cash management capabilities?
In generic terms, cash management refers to the handling of cash that comes into and out of your business. It is also defined as the process of collecting, managing and monitoring cash for a business. Cash management is a key driver for any company’s stability.
For a technology or a software development services company, certain strategies, if implemented, could mean a stable financial eco-system and consequently less stress on the overall growth of the company.

a. An efficient project management cycle
A detailed project management plan will help avoid any unforeseen circumstances during the project. Fewer unforeseen circumstances, fewer obstacles of generating cash if needed. A more detailed plan will also highlight all areas that are high-risk and help forecast for the timelines.

b. Structuring of the project proposal
How you structure your proposal to your client is extremely critical since once the proposal gets signed off, little can be changed with regards to the invoice’s terms and conditions or payment terms. There are various ways to structure your proposal. (i) Monthly payments – a certain amount is parked aside to be invoiced every month to manage the operational expenses. That quote amount should be enough to cover the expenses incurred from the project, inclusive of all assets, infrastructure, and other operational expenses. (ii) Milestone payments – over and above the monthly payments, certain milestones are earmarked for invoicing as well. These could be module deliveries; timeline-based and even resource allocation-based. Sometimes you could deduct the monthly payments from the milestones ones and treat the same as retainers.

What not to do: What should be avoided under all circumstances is the acceptance of payment at the end of the term of a given contract, regardless of short it is. This builds tremendous pressure due to the human resource mobilisation and utilisation of billing hours during the development phase. You can forego an advance payment in case of a very short-term contract, however, to ensure that the company’s system remains stable, there should be a steady influx of cash.

c. Planning of resources
During the project management phase, considerable thought has to be given to when and how you will deploy human resources within your own organisation for different phases of the development cycle. If you have multiple ongoing projects, the matrix to manage human resources can become very complex. Maintaining an optimal balance between each resource being used while still keeping on track with each client deliverable is key. To be able to forecast optimally the usage of all resources across all projects will ensure financial stability across the organisation.

d. Milestones and invoicing
A project, especially a long-term one, will call for several milestone achievements all tied to development goals. The calculations should be done methodically to ensure it involves pay-outs for the credits due and manages all the expenses that you might foresee for the development of the next phase of the project. There should always be clarity between you and your clients when invoicing. You might choose to invoice expenses related to assets and billable hours only or you may opt to invoice a lump sum to your client which gets detailed at a later stage.

All of the above or a combination thereof will help to ensure there is sufficient cash to function on a day-to-day basis and reduce stress in the long-term. This is mostly applicable to software development service companies.

In case you are developing a product of your own, there are a few more essentials you should know of. Since you own the product, you are in charge of all the phases of the product all way from concept to development to sale. The entire investment is yours to make. Which means, at the business plan stage, your forecast calculations for expenses, making budgets, and cash-flow has to be accurate. If you are able to map the sources of your cash, you will be able to successfully predict the need for external funds as well as any breakdowns of cash caused by high-risk milestones.

To summarise:
1. Make a detailed project management plan for each project and a consolidated resource allocation plan
2. Have a detailed budget of your funds
3. Highlight the sources of those funds
4. Have a plan in place to receive/make payments
5. Ensure all client payments come in on time
6. Identify high-risk project activities that might need large amounts of cash
7. Invest accordingly to grow cash within the company