Cash Flow

Cash Flow

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For many businesses, financing cash flow for their business can be like riding a continuous roller coaster.

Sales are up, then they do down. Margins are good, then they flatten out. Cash flow can swing back and forth like an EKG graph of a heart attack.

So how do you go about financing cash flow for these types of businesses?

First, you need to accurately know and manage your monthly fixed costs. Regardless of what happens during the year, you need to be on top of what amount of funds will be required to cover off the recurring and scheduled operating costs that will occur whether you make a sale or not. Doing this monthly for a full twelve month cycle provides a basis for cash flow decision making.

Second, from where you are at right now, determine the amount of funds available in cash, owners outside capital that could be invested in the business, and other outside sources currently in place.

Third, project out your cash flow so that fixed costs, existing accounts payable and accounts receivable are realistically entered into the future weeks and months. If cash is always tight, make sure you do your cash flow on a weekly basis. There is too much variability over the course of a single month to project out only on a monthly basis.

Now you have a basis to assess financing your cash flow.

Financing cash flow is always going to be somewhat unique to each business due to industry, sector, business model, stage of business, business size, owner resources, and so on.

Each business must self assess its sources of financing cash flow, including but not limited to owner investment, trade or payable financing, government remittances, receivable discounts for early payment, deposits on sale, third party financing (line of credit, term loan, factoring, purchase order financing, inventory financing, asset based lending, or whatever else is relevant to you).

Ok, so now you have a cash flow bearing and a thorough understanding of your options available for financing cash flow in your specific business model.

Now what?

Now you are in a position to entertain future sales opportunities that fit into your cash flow.

Three points to clarify before we go further.

First, financing is not strictly about getting a loan from someone when your cash flow needs more money. Its a process of keeping your cash flow continuously positive at the lowest possible cost.

Second, you should only market and sell what you can cash flow. Marketers will measure the ROI of a marketing initiative. But if you can't cash flow the business to complete the sale and collect the proceeds, there is no ROI to measure. If you have a business with fluctuating sales and margins, you can only enter into transactions that you can finance.

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