Looking to grow? It’s all about the cash flow
Every business owner knows cash is king. But many find themselves on the back foot managing their cash flow just to keep their head above water.
What if you have growth ambitions? How do you set the business up financially to make strategic investments or seize opportunities?
Educate yourself. It is not enough to say, “oh, my accountant does it.” No matter how much we value their input, it is really up to us. Only we can make the decisions of how we allocate cash (and time) to what projects.
Make sure you take advantage of the myriad of courses available for you to skill yourself up and become cash flow confident.
What does it mean to becoming cashflow ‘confident’?
- An understanding of cash flow
- Knowing where your cash is
- Channelling the cash appropriately to extract the best value
Your time (and energy) are as important. Keep your eye on the big picture and make sure you’re investing your own time where it has the most impact. Perhaps you could think of this a ‘ROTI’ (Return on Time Invested)
You have probably heard of the adage, “work on the business, not ‘in’ it.” But what should you do when you find yourself on the treadmill?
I often say, you know, who owns your business? Do you own the business or does it own you? And if it owns you, it’s really time to have a talk to yourself.
By channelling your cash into operations or investment, you can choose who and what time to make available.
These choices enable you to outsource the elements of your business that you loathe and assist you to focus on the ones you love where time is money and money is time.
I’ve got a lot more to say on this topic. You can dig deeper with this recent video interview I did with Airwallex. I hope these insights work as well for you as they did for me.
Frequently Asked Questions (FAQs) on How the Cash Flows Will Determine How You Grow
What is cash flow and why is it so critical for a business?
Cash flow is the net amount of cash moving into and out of a business. It is the absolute lifeblood of any company because it is the money required to fund day-to-day operations, from paying staff and suppliers to keeping the lights on. A business cannot survive without positive cash flow, regardless of its profitability.
What is the difference between profit and cash flow?
Profit is the money left over after you subtract all business expenses from revenue; it's a measure of your business's performance over a period. Cash flow, however, is the actual cash in your bank account at any given time. A company can be highly profitable on paper but still fail if its customers don't pay on time, leading to a negative cash flow situation.
How does a company's cash flow directly impact its ability to grow?
Growth requires investment, and investment requires cash. A business with strong, positive cash flow has the fuel it needs to invest in growth opportunities—such as hiring new staff, launching marketing campaigns, or purchasing more inventory. A business with poor cash flow is in survival mode and simply cannot afford to make the strategic investments necessary for expansion.
What are some effective strategies to improve a business's cash flow?
Effective strategies include invoicing customers promptly and having clear payment terms to shorten your accounts receivable cycle. It's also crucial to manage your expenses diligently, negotiate better payment terms with your own suppliers, and maintain a lean inventory to avoid tying up too much cash in unsold stock.
What is a cash flow forecast and why do I need one?
A cash flow forecast is a vital financial planning tool that projects the amount of money you expect to flow in and out of your business over a future period. It is essential for proactive financial management, allowing you to anticipate potential cash shortages, make informed decisions about spending and investment, and ensure you always have enough cash on hand to operate and grow.
