Virtually every business says they want to grow. And almost all firms have cash flow challenges from time-to-time. How can you accomplish both growth & solid cash flow management simultaneously?
Be smart. Have a plan. Work your plan. Oh, and follow these 9 guidelines:
- Start with more cash than you need. Forecast your cash flow needs using a Cash Budget and then do 2 things:
- Decide how much cushion you are comfortable with [10-20% is very common] and maintain that.
- Secure a Revolving Line of Credit from your banker as a backup.
- Grow with a strategic financial plan that projects your revenues, expenses, profits & cash flow. Then develop specific actions to achieve these.
- Create a strategic [long-term] plan; break it down to a business [medium-term] plan & then an operating [short-term] plan. Then work your plan.
- Have you Strategy drive your Tactics; not the other way around. Tactics are used to achieve your strategies.
- Understand the difference between profits & cash flow. Profits repay long-term debt & equity; cash flow repays payables.
- Learn to understand your financial statements so you can use the information to manage your business better.
- Manage inventory so it doesn’t manage you (out of business). Eliminate unnecessary, excess & obsolete inventory early.
- Decide what level of working capital you want to maintain; then do so. Use technology to reduce excess & free up cash flow; permanently.
- To achieve this, manage the various components of working capital (receivables, inventory & payables) aggressively.
If you regularly follow these 9 guidelines, you will always have enough cash flow to allow you to comfortably grow; and to sleep at night.
Would you like a copy of our Cash Budget template? Want to know how you can achieve better Growth & Cash Flow management? Contact me at DanielFeiman@BuildItBackwards.com