In the News: Cash Flow
June 25, 2009, 10:05 pm
Copyright © 2009 Integrated Profitability TM
Apparently, Cash Flow is an important topic for just about every type of organization. Including the government of our fair State of California. The lead headline in yesterday’s Contra Costa Times was about the current state budget crisis: “In state senate, it’s high noon.” (Note: the Contra Costa Times website has a different title for this article: “Democrat lays down gauntlet: vote for cuts”)
On Monday in “Cash Flow: Revenue (Timing),” the current series of the Small Business Finance & Profitability blog started on ideas for improving cash flow from the revenue side of the equation. The State of California is right there:
“Democrats have proposed about $9.8 billion in one-time revenues such as accelerating withholdings on personal, corporate and independent contractors’ earnings,…”
Sound familiar? It should. It’s a revenue timing move. As pointed out in Monday’s article, timing only temporarily helps cash flow. This proposal (which didn’t exactly sail through the legislature) doesn’t change the amount of revenue that is owed to California or how much the State is going to end up collecting for the year, but it does cause taxpayers to pay earlier. Which helps California’s cash flow as soon as the higher withholding goes into effect.
However, because it doesn’t really increase state revenue, I disagree with labeling this move a proposal of “…one-time revenues…”
A future article in our Cash Flow series deals with actual increases in revenue (which the proposed budget for California contains: like the .25% increase in the state income tax rate). Once the revenue side of improving cash flow is covered, we will deal with it’s sibling: expense side. California is already heading in that direction:
“Democrats have proposed…a paycheck deferral that pushes one day of salaries into the next fiscal year.”
Again, this is a timing issue and although there is only a 24 hour difference in pay days, the salary paid one day late moves from this fiscal year into the next year. So, this little delay makes the current year look better (less personnel expense). Next year, of course, looks exactly that much worse. Again, there is no permanent improvement in the state’s cash flow.
How much does this move help California’s cash flow? Well, I don’t know that answer in absolute dollar terms. It does help California’s cash flow in the amount of however much that one payday costs. That will be the dollar amount.
As mentioned, these types of tactics only temporarily help cash flow. How long will this particular one help California’s cash flow? 24 hours. Or a whopping 1,440 minutes.
I’m going to guess it took the legislators longer than that to come up with the idea.
Bill
William A. Stong
Email: william.a.stong@gmail.com
SBF&P # 24
Copyright © 2009 Integrated Profitability TM
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