What is cash flow in your business, and why is it important to you and your business?
First, the why. Almost everything you desire for yourself, your family, your community of customers, and possibly that big goal you have in your heart to help improve the world comes as a direct result of the effectiveness of your business operations and profits derived from the business.
The following are experiences you will benefit from by incorporating cash flow tools into your business operations:
• A guide to assist you in seeing where you are going and getting you there
• Align more effectively with your business purpose for more significant wins
• More fun as you experience your dreams coming true
• Increased success as you add more excellent value to others
• Improved leadership capacity
• Clarity as you become more purposeful
• Greater teamwork as others experience your fun
• Your enthusiasm is contagious as others witness your joy.
• Elevated creativity as you experience greater permission to initiate
• Improved visibility to see the road in front of you
• Opportunities as many more doors open
• Favor in the marketplace
Second, what. Cash flow in a business is the cash coming into a business from various sources and the money going out from the company to multiple places and people. The timing of these flows is vital and of utmost importance to your business success. Cash flow is a net positive result between the inflows and outflows. What does this mean? Let me answer that with a diagram or image.
My suggestion is to view your business cash flow as a tank with numerous pipes coming into the tank and multiple pipes going out of the tank. The inflows and outflows are of concern, meaning there are possibly clogs and leaks in the pipes. For example, take a toilet. What happens if there is a leak or a clog? It can create a real mess, can’t they?
To positively affect the inflows and outflows adequately, you will need a flow of information and a viable, practical system to monitor the factors that affect the inflows and outflows so your business can operate effectively and profitability.
Like any system or process that receives an inflow of material and has a method of outflow, many things can and do happen to positively and negatively affect the flow. Thus, attention, regular maintenance, consistent monitoring, and accountability are musts if the system is to flow effectively and do what it is designed to do.
Additional, whys cash flow understanding and monitoring are essential for your business:
• Cash flow is king in your business
• Like oxygen for the human body, cash flow is the vital nutrient for the life of the business body
• Cash flow understanding and monitoring is a communications tool, like your cell phone, keeping you in constant contact with your
business
• Cash flow is the primary basis for valuing your business
• Cash flow understanding and monitoring in your business will help you create your future
3 Steps for a better understanding of your Cash Flow
Step 1: Your business operation is not linear (processing from one stage to another in a single series of steps) but is cyclical. It flows in cycles:
In line with understanding the cash flow cycle, it is essential to know and incorporate cash flow drivers and apply this knowledge in your decision-making to increase your operational effectiveness and profitability in your business. Following is an image pointing out the significant drivers:
Step 2: the key, most useful tool I have used in my career, is a cash flow forecast.
I have found that consistent and proper use of cash flow forecasts is a way to help procreate your business (sustain, scale) to accomplish your dreams and goals. Here is a universal law to know and heed, much like gravity, that applies to the use of cash flow forecasts: you are more likely to achieve what you focus on continually. Forecasts are the essential tool to create the view through your business’s’ financial windshield to drive your business forward.
Step 3: Cash Flow Simplified Report – I found this tool beneficial to business owners who do not fully understand cash flow and usually do not take the time to see what is happening with their business cash flow. This tool enables the owner to understand and address the three largest cash flow drivers the past month, quarter, or whatever period being monitored.
This tool allows you to follow the cash by answering what happens to the cash question. The key to this is to provide a simple answer to that question without getting into the cash flow nitty-gritty details.
I invite you to taste and try one or all three of these tools to experience the positive results they will have for you and your business.
To know more about these tools to improve your business’s operational effectiveness and profitability, contact me at larry@larrytyler.biz and request the Cash Flow and Profitability Tools Bible eBook I’ve written is a compilation of the ten most useful tools I’ve used in my career.