Let’s Understand How Cash
Flow Works!
Presented By Carl Kinker
The Controllership Group
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Reasons For Business Failure
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In his book Small Business Management, Michael Ames gives the following
reasons for small business failure:
1:Lack of experience
2:Insufficient capital (money)
3:Poor location
4:Poor inventory management
5:Over-investment in fixed assets
6:Poor credit arrangements
7:Personal use of business funds
8:Unexpected growth
Gustav Berle adds two more reasons in The Do It Yourself Business Book:
9:Competition
10:Low sales
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Personal note in my opinion 6 out of the first 8 have direct tie to CASH
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Cash Flow Basics
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Is cash flow my checkbook balance?
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That is a start but cash flow is much more
dynamic.
My definition for cash flow – Cash flow is
the measurement of everything that either
has or will turn into a cash inflow or
outflow.
It can presented looking back in time or
looking forward.
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Ways To Improve Cash Flow
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Customer invoicing must be a high
priority
Weekly follow-up on collecting
receivables
Maintain reasonable inventory levels –
reevaluate what is reasonable often
If your competition is getting deposits
or money up front. Are you?
Pay payables as due not as they come
4
Ways To Improve Cash Flow
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Try to finance fixed asset purchases
Be realistic in amounts you are taking
out personally
5
Proper Use of Debt Versus
Improper Use of Debt
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Matching type of debt with its use
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Short term money (line of credit and
charge cards) should be matched to
working capital needs short term in nature
Term loans should be matched to buying a
business, equipment and permanent
working capital. Long term in nature.
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Why This Is Important!
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Measurements Of Cash Flow
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Start with your breakeven point.
Formula is sales 1– variable cost as %
divided into fixed costs = breakeven
point in sales
Use numbers above with principal
portion term loan for cash flow
breakeven point in sales.
Any timeframe can be used for this
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What Does All This Mean?
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Cash flow is the life blood of your
business. Just like our bodies cannot
allow a loss of blood on an ongoing
basis neither can your business.
You have to understand your cash flow
or work with someone that can help
you to understand it and make it work
for you!
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