Cash (Flow) Is King
You’ve heard the adage, read the books, and listened to the podcasts proclaiming…
“Cash is king!”
Except it’s not.
Don’t get me wrong, having cash on hand is nice. Watching it grow each month is entertaining, but it probably takes you away from what’s really important.
The real mantra should be, “Cash flow is king.” Here’s why.
4 Tips for Consistent Cash Flow
Flow connotes action — something moving.
Back in the day, after a storm, some kids in my neighborhood liked to jump up and down in puddles. I enjoyed watching the water flow down the street gutter toward the drain… put a stick or a leaf in that water and watch it go… I could be out there for hours.
Flow is what propels things forward. Like your business.
So, how do you accomplish consistent cash flow? A few tips…
1. Invest in Short-Term Items
Maximize your short-term opportunities by investing in items that will create a return greater than a money market account.
If your business is a product based: Usually, your gross profit on your product is greater than 5%, which is the going rate for a money market account. If your market supports the growth, buying more inventory to sell is a great way to flow cash.
If your business is service based: Adding staff who can deliver more revenue is your best bet for flowing cash in the near future.
2. Invest in Infrastructure
As I noted last month, infrastructure isn’t sexy, but it’s necessary to grow your business sustainably. (Read the recap here.)
If you want to grow your capacity, you need to invest in systems and people.
R&D and feet on the street will both drive capacity. Buying a more efficient piece of machinery can also create positive cash flow. Keep your tools sharp.
3. Measure Your Cash Flow Frequently
I love the 13-week cash flow model. I do it for my business every week.
This is a weekly cash flow report, showing all the in and outs of my money. It gives me a look into the future so I can predict when to make big investments.
Remember, measure what you value. If you value a continuous flow of cash, put the mechanisms in place to track it.
4. Diversify Your Investments
Every business should generate a return for the owners. Don’t be afraid to take a distribution to invest in something outside the business.
Now, make sure your business is performing well first, but feel free to look at other investments of money and time. A family trip or personal adventure are both healthy ways to grow yourself.
“Cash flow is king.” All hail the king!
Do you need assistance in pulling together your cash flow plan? Give me a buzz.