Got Cash Flow? (Part 1 of 2)
July 9, 2009, 9:33 pm
Copyright © 2009 Integrated Profitability TM
Is your company generating Cash Flow or Cash Dribble? Does your Cash Flow look like the Amazon? Or a dry wash?
Excellent Flow
If your business is firing on all cylinders and you are drowning in a flood of positive Cash Flow, then STOP READING! Go straight to your favorite sweet shop and treat yourself to your favorite dessert. Do not stop at the gym, do collect your “2-for-1” coupons. You deserve a reward for your outstanding success.
On the other hand, if your Cash Flow isn’t as much as you would like, or you think it should be more, then read on. If your Cash Flow is negative, then definitely continue reading.
If your business’ Cash Flow is:
● overwhelmingly positive,… why are you reading this? You’re supposed to be enjoying your favorite dessert. Get out of here. Unless you’re reading this over a banana split at Fenton’s or another fine establishment—then you’re off the hook.
● trickling along, then now is the perfect time to take action
No Flow
● negative, then late action is better than no action
And finally, if you don’t know your business’ Cash Flow, then you are starting at Square One; which, if you have been in business for some time, is not a good place to be.
Square One
Your business needs a set of financial books. Period. In the beginning, you might not need a bookkeeper, an accountant or a tax advisor. You might not need Quick Books, Quicken or even Excel. And if you really, really dislike numbers, you might not even have a shoebox (but you should).
At the very least, you need to be able to sit down at a table with three pieces of paper, a pencil, an eraser and a calculator. With these supplies and equipment, you then do the following:
1. On the first sheet, titled “Revenue,” jot down all the incoming money generated by your business. If you’ve already done this to calculate your Net-Profit (Got Profit?TM), start with the same sheet.
For each piece of revenue, how were you paid? Did you receive cash? Debit card? Credit card? Check? How ever you got paid, put that down. When did each type of payment convert to cash? That is, when did you receive cold hard cash, either in your till or your bank account?
Total these revenue numbers for each payment type.
2. On the second sheet, titled “Expense,” jot down all the money spent on generating the revenue listed on the first sheet. If you’ve already done this to calculate your Net-Profit, start with the same sheet.
For each expense, how did you pay? Did you pay by cash? Debit card? Credit card? Check? Promissory Note? How ever you paid, put that down. When did each type of payment convert to cash? That is, when did you have to pay cold hard cash, from either your till or your bank account?
Total these expense numbers for each payment method.
3. On the third sheet, titled “Cash Flow,” write down the following equation, using the numbers from sheets 1 & 2:
Total Net-Revenue (Sales converted to cash) (+$) minus
Total Net-Expense (Expenses paid in cash) (-$) equals
Cash Flow (+/-$)
Puzzled or troubled by the timing of those conversions to cash? Later articles in the series will provide a format and steps for summarizing and calculating your business’ cash flow in ways that can highlight actions you might want to consider.
Bill
William A. Stong
Email: william.a.stong@gmail.com
SBF&P # 28
Copyright © 2009 Integrated Profitability TM
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