Part 6 of 10, Fraud Inoculation

Part 6 of 10, Fraud Inoculation

Cash Flow Forecast

Of course one large contributor to survival was reducing the workforce. From the date of the fraud discovery to three and ½ years later, sales have decreased by almost half, yet payroll expenses have been reduced by more than 50%.

With the small monthly repayment plans in place, the firm now operates slightly above break-even, eking out a small operating profit during the majority of the months.

One large reason for being able to operate profitably, most months, is that every week we revise and create the new Bible – in the form of a Daily Cash Flow Forecast six weeks into the future.

This cash flow forecast includes AR in, AP out, occupancy expense, sales tax expense, checking account balances, 1099 expense, cash in through the retail stores, cash out to fund 401k agreements, auto-pays in the checking account, vendor and creditor agreement payments, shipping expenses, etc., whatever is needed, all on a daily basis. And we fit all that information into a one-page report.

Then we balance the checking account, materially, every day. Both the accounting clerk and the owner know every day what the checking account cash balance is as well as the net balance, assuming all outstanding checks had cleared, including which checks are outstanding and likely how long before they clear.

 

One Reply to “Part 6 of 10, Fraud Inoculation”

  1. There are many cslaaicsl economic theories on the origin of bubbles. In truth, there are probably many different effects that contribute, and all pure’ theories fail in some way (hence model building and relaxing assumptions).One of the usual complaints layed down by say the Austrian school, and various monetarist factions is that the federal reserve kept interest rates too low for too long. This increases the money supply and can cause a bubble if the money supply grow faster than GDP (they are tracked by indicators like M2 and M3). Unfortunately its not entirely robust either, b/c bubbles have been created in the past even when the money supply is relatively low growth.So I’d be wary about one size fits all explanations, but yea certainly effects like this can increase the probabilities or add pressure for euphoria phases.(Interestingly in this case, the problem is not locused just in the US, but is global in nature, which complicates things to the nth degree as you have to account for all the different regulatory laws, different interest rates, different inflation rates and so on and so forth.. In short an analytical nightmare)

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