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It's all about Cash Flow

Updated: Mar 1

Good financial management is all about cash flow.

You’re an owner and business is moving along well. Revenue is trending up and you are excited to see those numbers growing. However you can’t stop noticing that your cash balance is always surprisingly low. You’d like to avoid taking on a loan and it’s too early to raise additional capital. To complicate matters, the increase in revenue and transactional volume has kept you busier than ever staying afloat with your day to day. With regular ebbs and flows in your business and related costs, you are concerned about your margins, maintaining a rainy day fund, and turning a larger profit to grow your business and financial position. Overall you are feeling vulnerable and craving financial peace of mind.

This is the story we hear all too often and reason why focusing on cash flow is more important than ever, especially in the current economic environment.

We see that our flourishing businesses look beyond upward trends in profits and revenues. They know that revenue growth does not always translate to an increase in cash flow or profitability. Therefore they place a keen focus on their cash position, future cash flows, and achieving sustainable growth. They know it’s important to increase their cash runway to allow them to further invest in their businesses, themselves, and their futures.

Without a steady flow of cash, a company simply can’t survive. Data shows that over 80% of business failures are due to lack of cash. However, these statistics are merely a case of taking your eyes off the proverbial ball, stepping into the box without a plan or sense of what’s coming at you and from where. Superior businesses know how to aim for financial doubles, and avoid the need to constantly swing blindly for the lucrative home run. This allows them to stay in the game, garner attention, evolve as a team, and consistently manufacture runs to put them in the best position to achieve desired outcomes.


4 Steps to increase your Cash Flow:

Create a clear financial picture [Step One]

Tracking your financial activities and organizing them in a clear, concise, and methodical way is step one. Why? Plain and simple, it’s a requirement that all businesses maintain clean books and records if the IRS were to come knocking. However, many business owners stop there. They stop at compliance. At the final hour, they pull together a quick and easy (often error-prone) system for capturing basic income and expense items for lobbing over the fence to their tax accountant. We need to take a bigger stride with this step. An effective accounting and financial management system goes beyond the basic tracking of high-level financial transactions. It should be designed to completely and accurately capture all financial activities and produce relevant data in an organized way that provides extraordinary financial knowledge and insights to its owners and investors. Financial reports such as the Balance Sheet, Income Statement (P&L), and Cash Flow Summary provide powerful information at a top level to wrap your head around assets, liabilities, and equity positions, as well as business revenues, expenses, and profits over a period of time. You’ll become savvy on differentiating between operating, investing, and financing activities of the company and how the business dedicates cash to each one of these areas. You will also begin to understand and guide your business based on key performance indicators that are used to track, measure, and analyze the financial health of the company. These metrics include gross and net profit margin, working capital, current ratio, debt-to-equity ratio, and inventory turnover to name a few. These metrics will guide you in understanding profitability, liquidity, solvency, efficiency, and valuation. This clear financial picture will surface opportunities to save costs on operations, reduce debt and related expenses, and increase throughput of sales. Once you have a good grasp on your current state, you can then project out future business and financial related scenarios to ensure you can weather tough times and capitalize on the good ones. Bottom line: implement and maintain a good accounting and financial system that provides you with the insight of where you stand, where you want to be, and a road map to get there. Consider an Advisor or Personal CFO who can work with you to expedite the implementation and business growth process.


Implement a sound money strategy [Step Two]

Before you can jump into assessing your numbers and financial metrics, it’s important you map out a plan of where money is coming from and where it is going. Every thriving business has a goal and plan for where they would like to go. This plan is set at the beginning of the year and is revisited on at least a monthly basis. The plan is iterative and can evolve, however not setting initial goals and tracking to those goals often leads to complacency, or sometimes failure, in most businesses. This planning process should have at least two aspects. The first entails the development of a more qualitative business plan on how you envision your business to evolve and initial high level steps to reach your goals and objectives. This plan can include your go-to-market vision and strategy for attracting customers/clients, new or altered revenue streams you would like to focus on, brand presence surrounding the look and feel you’d like to achieve and avenues for showcasing this brand (social media, local groups, email campaigns, etc.), expanding vendor relationships, and a hiring plan to support you with these aspects. However, what’s typically left behind is the planning process around cash flow. This is the second, and highly crucial, aspect to ensuring success. It’s difficult to achieve the first aspect without a clear understanding of how much money you’ll need to reserve for each of these pieces. This is where budgeting comes in. Budgeting is going to be your ticket to cash flow optimization, increasing your cash runway, and getting on a path to sustainable growth and profitability. Budgeting is a core component of your financial road map. Utilizing historical financial trends in your business, and layering on anticipated future state variables, you can set an initial budget and start forecasting out future financial scenarios. This budget takes into account how much revenue you anticipate from all your income producing activities and, of this revenue, how much is going right back out the door towards business expenditures and related costs. The difference will provide insight into the net amount of cash retained on a monthly, quarterly, and annual basis. You’ll be able to budget and subsequently track against these metrics, at both a high level and at the more detailed financial statement chart of accounts level. This budgeting and tracking allows you to understand your anticipated cash position at a point in time, determine how much of your net cash retained you can allocate to various business operating activities, amount retained for business reinvestment and growth, and how much money you can draw from your business as an owner.



Leverage modern technology [Step Three]

Leveraging modern cloud-based technology is an absolute must for businesses of all sizes. This technology, along with its associated applications, will allow you to create a custom accounting and financial hub to operate your business and produce the tailored financial information you need now and into the future. At Mitchell Advisory Services we work with online accounting software that lets you input, access, and keep an eye on your financial information wherever you are. This software is clean and easy to use whether you’re just starting on accounting software or you’re switching from a different product. We recommend utilizing this software as your core financial system, and then integrating other cloud-based applications you utilize such as payroll software, accounts payable applications, forecasting tools, and e-commerce platforms to name a few. You’ll have the option to customize your business technology stack from over hundreds of applications in the ecosystem. This will help automate many previously manual and tedious tasks, saving you time and allowing you to concentrate on the value-added activities that drive your business forward. Modern technology is also key to supporting cash flow management. Budgeting and forecasting technology provides you with an in-depth look at how you are utilizing revenues and other money received. Utilizing historical information on cash inflows and outflows, you will be able to better project future business scenarios and prepare real-time and dynamic financial forecasts and models based on known and anticipated variables. You’ll also be able to optimize accounts receivables and accounts payables to maximize cash flow, understand cash burn, and identify opportunities to negotiate terms of payment with your customers and vendors. You can finally take the guesswork out of decision making. Hiring a new employee, or purchasing a new asset? Utilizing intelligent software business owners can better predict current and future cash position based on varying risk factors and business scenarios. You will be able to leverage this insight to measure progress towards achieving your goals and objectives on a monthly, quarterly, and annual basis. Business Management, Investors, Boards, and prospective buyers will be thrilled by the comprehensive, yet easy-to-digest, reports and packages you’ll produce with these technologies.


Perform regular financial reviews [Step Four]

Confidently plan for every possibility. Good financial management does not stop at the creation of a well-structured and modern financial system, but incorporates well defined and established business processes that continue to move the business forward or allow for a timely pivot. One of the more crucial processes that need to be established are regular financial reviews. This includes reviewing business financial reports and analyses on a monthly, quarterly, semi-annual, and annual basis. These reports will provide key insights into the performance and health of the company over the last 30, 90, 180, and 365 days. By reviewing prior financial activity and metrics, including comparison to similar historical periods, business owners will be able to recalibrate direction if necessary or identify additional revenue producing, cost saving, and/or funding opportunities to reach their money strategy and business goals. Additionally, regular financial reviews will allow you to identify timely strategies for tax savings, write-offs, and efficiencies to reduce your tax burden, or dig into any anomalies that surface through review of a defined period of financial activity. It’s much easier to review a month of transactional activity than tackle twelve months of financial details where it might be too late to adjust, dispute, or resolve any discrepancies or errors that may be identified. Lastly, by understanding your financial position and cash flow projections, you’ll be able to seek opportunities to continually reinvest in your business and dedicate capital to new technologies, workflow tools, marketing, hiring, and training, coaching, and professional development for your employees, and most importantly yourself!


Mitchell Advisory Services is well positioned to be your trusted advisor as you map out and achieve your accounting, financial, and cash optimization goals. We partner with companies of all shapes and sizes to implement effective financial management systems and processes that:

Provide a clear picture of the business and all of its financial components

Optimize cash inflows and outflows to achieve financial goals

Ensure peace of mind regarding financial reserves and ability to re-invest in the business for sustainable growth

Track key performance indicators and metrics to measure progress towards goals

Put the right people, processes, and technology in place to ensure an efficient, effective, and high-performing environment

Help you confidently report out to investors and other stakeholders, and secure the appropriate financing (debt and/or equity) for much needed liquidity



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