Need Some Help With Your Cash Flow?


Happy Monday! Today we’re talking about cash flow. Head over to our YouTube channel or check out this article from PYMNTS to learn more.

We’re continuing our series on key metrics that all businesses must monitor. Last time we talked about profitability, which many people get confused with cash flow. This week, we’re going to talk cash flow! This seems more real to everyone, especially small businesses, or a micro business where you’re essentially operating out of a checkbook. We still maintain that profitability is the most important, but we all live and die by cash flow.

So what does that mean? Cash flow is clearly cash in, cash out. Very simple concept. The real hard part is the cash flow planning. Most businesses must put out all of their cash before they get a single dollar of payment from their customers. For instance, especially in the high-tech media business, they’ll spend millions and millions of dollars developing a product and then sell it in the subscription world for $29.99 a month, or $6.99 a month, or $59.99… some some nominal amount based upon the value. So that business’s cash flow is all out. Then you hope it all comes back in, and of course, there has to be a huge margin on that for that to be able to work. So that business cycle is years in the making.

Other businesses take the other extreme. A restaurant business will typically buy its food on a weekly or daily basis. Then they prepare it, sell it at a lunch or dinner. Their business cycle is a matter of days or even hours before they take their cash. In that type business, you will likely get your money before you ever have to pay your vendor.

So those are the types of things you have to deal with when planning your cash flow. We encourage you to have a dedicated person helping you in planning your cash flow, because most of the time, each vendor and customer relationship must be individually analyzed and planned for, especially in large contract type businesses. Sometimes customers are more “one size fits all,” so that’s a bit easier, but your vendor relationships are not. They can be due in a week, due in three days, due in a month, or due in 90 days.

Again, all of these things have only to do with cash flow, and and then later on you have to separately analyze profitability over time. So cash flow planning is king. It’s very difficult and time consuming. Let us know if we can help you set up a system or a series of reports to monitor your cash flow.

Always here to help at Harvard Grace!

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