3 Tips to Understanding How Cash Flow Can Keep Your Business Successful
Summary: If you're a woman entrepreneur and are serious about your success, then you know that keeping your business running smoothly is key. One of the biggest challenges most entrepreneurs face is understanding how cash flow works for their business.
Cash flow is a term used to describe money in, money out. It's an important aspect of accounting because it helps us understand if we have enough money on hand to pay our bills or not and whether we need to take action (like raising capital) or not.
Understanding how cash flow works for your business can be tricky but here are three tips to help you get started with this concept so that you can keep moving forward with confidence!
Are you a woman entrepreneur with ambitious goals for your business this year?
Who am I kidding…of course you are!
That being said, you likely already know that the key to success is ensuring that your business possesses the qualities it needs to run like a well-oiled machine. We also know, of course, that doing so is a lot easier said than done…particularly when it comes to the oh-so-dreadful subject of cash flow.
Cash flow is intangible in the sense that it feels like it’s here one day and gone the next. And losing control of your understanding of where you stand on any given day allows feelings of frustration and fear to grow. As we talk about a lot here at Your Biz Rules, these negative emotions certainly do nothing in the name of progress.
With more clarity and understanding around the subject, you can develop a strengthened sense of control over your cash flow and, ultimately, the success of your business!
Ready to hop back in the driver’s seat? Let’s get started!
What Cash Flow Is Not:
Cash flow is not your bank account balance.
Most business owners view managing their finances by using personal management strategies, such as–
- 1Reconciling their checking account to know where their balance is.
- 2Checking what's going to come in or hasn't cleared the bank yet.
These strategies are valuable and reflective of good personal cash flow management, but they are not applicable to the cash flow of your business.
To help provide you with more clarity around this concept, I'm going to share three tips that can help you better understand cash flow and use it to keep your business success growing in the new year.
Three Tips to Understand How Cash Flow Can Keep Your Business Successful:
1. Understanding the difference between revenue, profit, and cash.
The saying goes, “Revenue is vanity. Profit is sanity, but cash is queen.”
It’s no secret that most business owners focus primarily on revenue. Unfortunately, this usually results in a less than ideal outcome. You can work long hours, have many sleepless nights, and be left with no energy to spare and still look at your bank account and think: “What do I have to show for it?”
When I hear this, I know the focus has been too heavy on revenue, and you know what? If that’s you, that’s okay! This is also how you know you are in the first stages of growth and are ready for the next: profitability.
Bottom line: Revenue is essential, but you want to have enough profit and make sure it’s healthy enough to produce cash.
2. Knowing how to identify a healthy cash flow.
Healthy cash flow is measured individually because it looks different from business to business. To determine your healthy cash flow and place the necessary benchmarks, there are specific metrics that need to be analyzed, such as:
If you take all the time it takes to gain a client, deliver the service, and get paid, that gives you an idea of the time your investment in marketing takes to produce a return in the form of client payment.
Then take at:
You could use various factors to determine the proper benchmark for your business, but the key here is to establish what ‘healthy’ looks like for YOU. When you have that metric that can answer the question of “Are we performing well or not?”, you can start to make different decisions. Decisions such as:
These are the decisions that give you the ability to make intelligent decisions in your business to maintain durability and stability for a long time.
3. Preparing for the expected and unexpected.
If you have been in business for any time, you know to expect the unexpected. And what happens when the unexpected strikes?
We are likely to feel:
All of these negative emotions indicate that maybe you weren’t as prepared as you should have been. Yes, it’s impossible to be prepared for EVERY possible scenario, but we can be prepared for most. And when we do, our businesses are in a better position to build financial stability, impact, and a legacy.
Preparing for the unexpected makes the difference.
When you know that you can handle the unpredictable, you can handle anything that’s thrown at you. If an event like a shipping crisis, war, or pandemic (sound familiar) comes your way, preparation will allow you to swiftly take action and move on from it. You are no longer left scrambling or worrying about what will happen next.
On the other hand, what comes at you might not be negative! Sometimes the unexpected could look like this:
All of these curveballs are something to be excited about! Nevertheless, proper preparation will put you in a position where you can actually see these unexpected opportunities through.
Preparing for the expected.
You can also prepare for the expected. For example, when working with clients, I ask, “What are your ambitious goals?” If they can clearly and meticulously define what those are, we can work together to prepare for them accordingly.
When we know our clients business goals, but also their personal goals such as funding retirement, paying for college, or taking a month long trip to Bali - we can set the business up to fund those goals - without more work or worry.
Ultimately, when we can take full advantage of situations that we’ve prepared for, whether good or bad, we can set ourselves up to better prepare for cash flow. When that happens, the money is an investment that we can mature to pay us dividends, and that's the nature of business.
Conclusion
There are many cash flow management practices that you can implement into your business to be more successful this year. You can hit those ambitious goals because you know exactly what cash is doing in your business, and you know where it will be tomorrow, next month, and next year that you can now make some of the smartest business decisions you’ve been faced with.
If you're looking for help with cash flow in your business from an entrepreneurial standpoint, reach out to us ASAP! On the one hand, we have the YBR community, and, on the other, we offer top-of-the-line private coaching! Either way, we’ve got the tools you need to transform your business into the well-oiled machine you’ve been striving for.
