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Cash Flow

4 Big Things You Should Know About Cash Flow

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CASH FLOW is the HEART of any business.  Small businesses, in order to be successful, are largely dependent on their Cash Flow; making it critical for any business owner to understand the impact, positive or negative, that cash flow has on their business.

According to a study performed by US Bank, 82% of businesses fail due to poor cash flow management.

1. Know Your Flow!

  • Cash flow tracks the cash coming into and out of a business
  • Cash flow is recorded only when money comes into your business
  • Cash flow balance is the cash coming in minus the cash going out
  • Know that Cash Flow can be both Positive and Negative

2. The Difference Between Cash, Flow Revenue & Profit

Here are the differences between revenue, profit and cash flow and why should you care; because if any of the three are off, your business is headed for trouble.

  • Operating Cash Flow = Money going in and out of the business
  • Revenue = Income your company earns from sales of goods or services, interest, fees and royalties
  • Profit = Revenue minus expenses
  • Gross Profit = Revenue from your goods or services minus the cost of those goods or services. Gross Profit accounts for expenses directly related to the creation of specific goods and services
  • Net Profit = Net Profit includes all other business expenses, not only the direct costs. Additional expense costs such as payroll, utilities, and taxes

3. Cash Flow Management

The BEST way to get ahead of or a cash flow problem is to Exercise Good Cash Flow Management:

  • Determine your Break-Even Point, the point where revenue meets expenses
  • Utilize Cash Flow Forecasting to Head Off Cash Flow Problems
  • Plan ahead for expenses, SAVE regularly, to avoid negative cash flow
  • Perform a Cash Flow Analysis Regularly
  • Create backup plans to smooth cash flow, like an emergency fund or a line of credit

4. Solving/Improving Cash Flow Problems

If your business spends More than it earns, or your receivables come in slower than the time your payables are due; You Have a Cash Flow Problem. Some ways to Solve Cash Flow Problems:

  • Ask clients/customers for a deposit or milestone payment
  • Ask clients/customers to pay faster
  • Cut or delay expenses
  • Establish Favorable Credit Terms with Trade Partners and Suppliers
  • Consider leasing or selling any equipment you own

A cash crisis can be emotionally devastating and could even put your business OUT OF BUSINESS. At Borshoff Consulting, our cash management service allows you to know when, where and how your cash needs will occur to ensure success for your business.

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