33 MAY 2022 WorldWide Drilling Resource® Drilling Into Money Not Boring by Mark E. Battersby Cash Counting for Survival Cash flow refers to the cash flowing into and out of a drilling, supply, distribution, or manufacturing operation at a specific point in time. It is how the two-way cash flow is managed that is a key factor in the success or failure of the business. An operation’s ability to generate a positive cash flow, meaning there’s more money coming in than going out, directly impacts profitability. Positive cash flow indicates a business’s liquid assets are increasing; allowing it to pay its bills, reinvest in its business, return money to shareholders, and provide a buffer against potential future misfortunes or economic downturns. A quick and easy way to analyze the operation’s cash flow is to periodically compare the total amount of unpaid purchases with the total sales receipts due at the end of the month. If the total unpaid purchases are greater than the total sales, more cash will be needed than the operation expects to receive. Assuming from the beginning that the business will someday be short of cash, many drilling operations turn to a working capital line of credit for help with those inevitable temporary cash flow shortages. Unlike a business loan, setting up a credit line provides a set amount of funds which can be drawn on when the operation is short of cash, and paid back when it has extra cash. Other than a small periodic fee, interest is charged only on the amount actually taken out. When bankers won’t help, turning to suppliers may be another option. Suppliers are more interested in keeping their customers going than a banker - and they probably know more about the business. Extended payment terms from a supplier can be a hefty, low-cost loan. Despite the fact that cash is the lifeblood of every business - the fuel that keeps the engine running - most drilling professionals, suppliers, distributors, or manufacturers don’t really have a handle on their cash flow. Over the years, studies have shown poor cash flow management causes more business failures today than ever before. Most drilling professionals, suppliers, distributors, and manufacturers see growth as the solution to a cash flow problem. Frequently, the goal of growing the business is reached, only to find cash flow problems have increased in the process. Planning for growth and the related cash outlays in advance so they do not come as a surprise is best achieved with the help of a qualified advisor. Mark Mark E. Battersby may be contacted via e-mail to email@example.com DON’T MISS AN ISSUE - SUBSCRIBE NOW! www.worldwidedrillingresource.com Help us bring it to your door for only $1.00 USD monthly - postal fee.