Cash Flow vs Cash Loss

By Christina Suter on Mar 17, 2018 at 10:52 AM in Business Issues
Cash Flow vs Cash Loss

For over 17 years I've run a number of businesses and though my reach may not be massive, I want it to be impactful to those I do reach. I want to speak specifically to cash and cash flow management in this post.

Do you find that cash flow management drives you crazy? Are you at peace with the cash flow in your company? Are you certain your business is even earning money?

One day I had a client call me and say she needed to close her business because she felt like a failure and didn't know what she was doing. Once I got her to calm down and explain what was going on, she shared that one of her business partners said she didn't know what she was doing because she was always behind on everything and she thought he was right. The primary indicators that her business was a success were intact, so it didn't make sense to me. She was adding to her savings every year, she was increasing her net income, she had a strong margin, and she was able to pay herself. But at that moment, being overwhelmed, and having someone point it out to her, she agreed with her partner.

Cash = staying open. No cash = closing doors.

Lack of cash can end your business or make you feel like a failure even when you're succeeding. If you're late on your bills, payroll, have late fees, borrowing money to pay back later it's stressful but it doesn't mean you're failing or that you should close your business. Those things I've just listed aren't automatic indications that your business is losing money. Bad cash flow management can create what I call the cash flow crazies. Don't test whether you're losing money by your feelings.

Indicators that you're losing money include:

  • the balance at the start of your year is lower than the balance at the end of the year.
  • You money into your business but can't write the check back to yourself to take it out during the year
  • You're borrowing more money every year

 Your business is cash flow positive if:

  • The balance at the end of the year is the same or higher than at the beginning of the year in your savings or operating account
  • You put money into your business and you could write yourself a check to get it back (but if you're like me you probably don't)
  • You can pay your mortgage at home most months

If your balance is lower, you're borrowing more money, you aren't able to take any money home or less money each month, if your P&L has a negative at the end of the year, those indicators say you're borrowing to stay open. Your feelings are not your indicator.

Cash flow management means you can write yourself a check, pay your bills, (though maybe sometimes late) and your debt isn't growing every year. 

You can rework the structure of your business
You can streamline or let people go
You can close the doors and let the business go

If you're not losing money, look for the seasonality in your business. Figure out what times of year you earn a lot of money so you can stretch the money out and adjust for the low months. You can adjust the timing of your bills to adjust for when the money goes out and you can adjust for when the invoice goes out to have better control of when the cash comes in. 

You want to have a sense of peace in your business, so look past your feelings and look at the numbers.