What Is Cash Flow & Why You Need To Understand It | Fine Point Marketing
Channel: Fine Point Marketing
Date: 2020-07-16

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What Is Cash Flow & Why You Need To Understand It
01:14 - Poor cash flow causes how many business failures?
01:50 - The difference between cash flow and profit?
03:25 - What do successful businesses do?
04:00 - What are some factors that we should consider before going into selling at all costs?
08:20 - Easy ways to increase your cash flow...
10:26 - The soda machine example for cash flow and 80/20...

What is cash flow?

Cash Flow is nothing but the total amount of money being transferred in & out of your business.

in the context of the following discussion, this means positive cash flow – taking in more cash than you are spending.

If you take in $400 today and spend $500 you have a cash flow of $900 but a negative cash flow of $100

Positive cash flow will keep the doors open, long after profitability will. [Amazon is good example – 20 years of no profit???]

Positive cash flow gives you the financial cushion – and confidence – to implement changes AND make your business worth owning.

We know that the majority of small businesses fail within the first five years.

U.S. Bank conducted a study and discovered a number of reasons for this.

The primary reason they found was that 82% of the time, poor cash flow management or poor understanding of cash flow contributed to the failure of a small business.

What’s the difference between cash flow and profit?

Profit is the revenue remaining after deducting all costs associated with operating the business, while cash flow is the amount of money flowing in and out of a business at any given time.

What do successful business do?

Successful businesses do two things #1 they make money and #2 they generate cash.

You can make a profit and still go out of business because you have a negative cash flow.

What are some factors that we should consider before going into sell, sell, sell at all costs? (Help me sell more)

There are several factors to consider before leaping to the “sell, sell, sell!” mindset to reverse a cash flow problem.

1.      Track & Categorize your Expenses Make this categorization your first step.  You need to know exactly what you’re spending and where you’re spending it.

2.      Benchmark Best Practices.  Look at businesses within your industry and also businesses within your market. You don’t want to spend more cash than you have, so regardless of the benchmarks you’ve discovered from other companies, adjust accordingly depending on your available cash.

3.      Manage Your Spending. “It takes money to make money,” is a common belief and can cause business owners to fall prey to overspending, especially in the early stages of their business. While it’s true it does take money to make money, not all expenses are created equal. Stay aware that every dollar you spend is subtracting from your profit margin, so be especially diligent during the early stages of your business, it is important to consider the cost-benefit of every single expense

What are some ways someone can increase their cashflow?

There are numerous ways that we can discuss with clients, but we focus on two primary areas:

1.      Take on Only Revenue Generating Expenses

Most businesses or startups get carried away with unnecessary expenses like:

Fancy office expenses

Over-marketing

Over-hiring

How do you know if an expense is really worth it? Simple. If the expense helps your business to generate revenue keep it; If it doesn’t, consider getting rid of it.

2. Improve Your Inventory Model – stock & sell only what your TOP clients [the 20%] are buying  

Inventory only what your TOP clients buy and turns quickly.

[Cash Flow that is consistent by identifying and focusing on expenses and inventory that caters only to your ideal top customers [the 20% that generates 80%] and eliminate those that don’t.]

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