cashflow
Cash Flow
Actual money moving in and out of the business. The metric that decides survival.
Definition
Cash flow is the real movement of money in and out of the business in a given period, distinct from accounting profit. A business can post a profit while running out of cash - profitable invoices that have not been paid yet are revenue but not cash. Cash flow is split into three streams: operating (the core business), investing (asset purchases / disposals), and financing (loans, equity, owner draws). The single most important number for any small business is operating cash flow. When operating cash flow goes negative for several months in a row, the business is dying even if the P&L still looks fine.
In your business
- →Reconcile cash position weekly, not monthly
- →If profit is positive but cash is negative, chase collections before chasing sales
- →Forecast 13 weeks ahead so you see crunches before they hit