How Cash Flow Is Driven By Two Things

February 20, 2019


Cash Inflow


Cash inflow is the lifeblood of your business and comes from sources like payments from customers, receipt of a loan, monetary infusion from an investor, or interest on savings or investments. The Cash Conversion Cycle (CCC) is a metric that shows the amount of time it takes a company to convert its investments in inventory. ... The cash conversion cycle formula measures the amount of time, in days, it takes for a company to turn its resource inputs into cash.  Cash is also important because it later becomes payment for things that make your business run: expenses like stock or raw materials, employees, rent and other operating expenses. Naturally, positive cash flow is preferred. Positive cash flow means your business is running smoothly. High positive cash flow is even better and will allow you to make new investments (hire employees, open another location) and further grow your business. We love that, right!?! Conversely, there’s negative cash flow: more money paying out out than being coming in.


Get Organized and Plan

Positive cash flow is driven by two things: organization and planning.


Let’s start with setting your baseline. Begin by looking at the cash you have in hand, this could be money you’ve invested in the business, cash in the business bank account, loans that you’ve received, or an investment from a partner.

If you’re just starting your business, you’re interest in cash flow is well-timed.Especially if you have a service business that may a while to receive payment. Make a list of all the one-time start-up expenses that you have paid or expect to pay. Think incorporation fees, legal and accounting, licenses and permits, construction or remodeling, security deposit on a rental agreement or purchasing property, marketing materials and signage, initial inventory or supplies, fixtures like cash registers, office supplies, furniture, equipment, etc.

Next you want to determine your monthly expected cash sources. These can be projected sales, loans that you know are coming in at a certain date, investments from partners or investments. If you’re a new business you might want to project sales conservatively (better to outperform and have a better inflow of cash than you thought). If you’ve already started your business or are purchasing a business from someone else, you have a distinct advantage: sales history. History can’t predict the future, but it can paint a decent picture of what the future looks like and what business changes you might need to make. This is a great starting place, but always remember how and way cash is KING.  In my consulting program The 8 Essentials of Mastering Business is all about creating a system that improves your business and equips you with the skills and tactics you need to produce profits in ANY economic environment. Want to learn the 8 Essentials to Mastering Business? 

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