Got Cash Flow? (Part 2 of 2)
July 20th, 2009
Copyright © 2009 Integrated Profitability TM
In the article before our regular blogging got interrupted with “Breaking News” (“Got Cash Flow? (Part 1 of 2)”), revenue and expense information was gathered in order to figure your company’s cash flow. For revenues and expenses, the method of payment was highlighted because it provides insight into ways to improve cash flow. Here is what the table of information might look like:
|
Payment Method |
Revenue ($) |
Rev (%) |
Expense ($) |
Exp (%) |
| Cash | ||||
| Debit Card | ||||
| Pay Pal (or similar) | ||||
| Check | ||||
| Credit Card | ||||
| Government Programs | ||||
| Invoice | ||||
| I.O.U. / Promissory Note | ||||
| Other (describe) | ||||
| Other (describe) | ||||
|
Totals |
($) |
(%) |
($) |
(%) |
The order of the “payment method” is from immediate-cash to much-later-cash. For your business, fill the chart in, adding and taking away payment categories to fit the way your company operates. As you fill in the information, jot down estimates of how long each payment method takes to convert to cash. For revenues, that is how long you are financing (carrying) your customers. For expenses, that is how long your suppliers and creditors are financing you.
As you compile these numbers, do you notice any changes happening over time? Unfortunately, the time it takes revenue to convert to cash naturally increases, while the time it takes expenses to be paid in cash decreases. If both of these trends are happening in your business, your cash flow is getting doubly squeezed. If your cash flow is getting squeezed too hard, let’s talk.
In the meantime, here’s a generic approach to assessing the state of your company’s Cash Flow:
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