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Cash flow

Cash flow is not just about the numbers

October 21, 2016
Cash flow is not just about the numbers

While some industries are more cash intensive than others, no business can survive without generating positive cash flow – that means the company’s long-term cash inflows need to exceed its long-term cash outflows.

Analyzing, analyzing, analyzing

For SMEs, cash flow analysis is more than mandatory and it should be done on a monthly basis, but we recommend to do it weekly. Cash flow forecasting shows that the value of a company at any particular moment may not accurately represent its overall financial health. You can look at forecasting as a “cash lens” which a manager uses to better understand his business.

Yes, we often hear “Cash Is King” and it may be so – but cash flow forecasting is not just about numbers. And yes, you need numbers to make a forecast, but it’s not just about that.

Cash flow forecasting is actually about using numbers to make business decisions – this way, a manager can achieve business success and, of course, avoid failure.

When building a cash flow plan, be careful and always check the Zero Cash Date – this way you will always know the moment when you run out of money; and let’s hope you never get to it. By having this date in sight, you’ll always be prepared for a negative cash flow and, more important, to take action and manage the situation.

Also, cash flow is not so much about individual values, but what they tell you about the evolution of the business. For instance, on our platform, you can keep an eye on the Analytics page and closely monitor the income and expenses variations. This gives you the advantage to think ahead about how you’re going to boost your sales or to reduce the costs when gloomy days are about to happen. Monitor the main sources of revenue and keep a balance regarding your expenses: learn which ones weigh more in the outflows and reduce some unimportant costs or find a method through which you can negotiate a discount from a client, for example.

If not numbers, then what?

As Lauren Cannon wrote in one of her articles, many businesses go through periods when they become short on cash, leaving business owners in the unfortunate position of being unable to make payroll for a given period.

Let’s imagine you don’t have enough money to pay your staff. This is one of the most unwanted situations that can occur while running a business. As a business owner, you can try different methods to solve these unpleasant situations – be it a loan, getting money from family, friends or personal savings and hope you get lucky enough to make it through. But what do you do when you are clueless about what you have to do? Wouldn’t it be better to remove luck out of the equation and prevent this kind of situation?

This is one of the main reasons why, here, at ThinkOut, we believe that a cash flow forecast is mandatory, as we previously said. And this is why cash flow is not only about the numbers. It’s also about knowing where your business is today and where it will stand tomorrow.

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