What happens if we run out of cash?

“John, are you ready for our meeting? We said yesterday that we were going to meet to go over our financial projections and review a possible bank proposal.”

“I’ll be right there, Tom,” John Wilson, company CEO said to his controller.

John reflected on their conversation last week about the Company’s expected negative cash flow and the need to borrow from their bank, most of which resulted from giving extended terms to their customers.

John learned his lesson and wanted to avoid borrowing, but Tom had been pretty explicit about the need.

First, we need to review our short term cash needs

“John, I’ve gone over our short term cash needs again,” Tom said after they gathered in the conference room and were looking at some numbers on the overhead projector.

“I’ve created a simple example on the screen with all the numbers shown in thousands, which you can see in Figure 1 – Borrowing Availability, below. (more…)