Bob Gauvreau breaks down why profitable businesses still run out of cash. Two killers: customers who don't pay on time, and inventory that sits around tying up money you need to operate.
Cash flow management is essentially the process of money coming in and money going out. We need to understand is that the major driver of cash flow in is profitability. This comes from looking at our income statement or selling items at a higher price than what we're actually paying to have them delivered. This brings in positive cash flow. It means that we're selling something, we're collecting the money for it and then we're paying our expenses because if we're not collecting money we our cash flow management is out the window. So that would be one of the biggest cash flow management challenges is not collecting money at the time we deliver it or upfront. That would be a negative cash flow even though we've made profit. The other challenge on a cash flow management side is managing inventory. If inventory continues to go up and we're managing and we're investing our working capital or our business cash in increasing inventory, our cash flow resources are going out the window.
What Is Proactive Issue Flagging, And Why It Catches Cash Problems Before They Become Crises?
