Let's Talk Cash Flow

So this week I want to talk a little bit about cash flow, right? Cash flow is the lifeblood of every business. In fact, there's an argument that can be made that if, if every company had consistent positive cash flow, no business would go out of business, right? But the fact of the matter is that 50% of all businesses won't even see their 5th birthday because, generally speaking, it's because of cash flow problems. Now, why does that happen? And why does it go undetected? Because oftentimes you'll see this net income positive, everything looks great, feels great, but that's not translating into your bank account. Your bank balance is way off when it comes— when you compare it to your net income. And there's generally a few reasons why that happens. Maybe you're making loan payments, or maybe you're buying inventory, or maybe you're taking draws as the owner. Those 3 things right there don't hit the P&L. You're not going to see them hit your net income, but they do affect the balance sheet, right? So your cash flow is going— your cash is going lower, but it's not affecting your net income because they're balance sheet items. Another thing that happens oftentimes is you'll invoice a customer. So when you invoice a customer, you hit your AR, they owe you the money, hit your revenue. And what happens is you run a report and you look, oh, my net income is great. I have all this revenue, right? But you haven't collected the cash. So there's a disconnect with that revenue and your actual cash flow. So that's why oftentimes fractional CFO firms will incorporate as a core product offering a cash flow forecast. And that's usually like 13 weeks, sometimes it's a year, 24 months, whatever. And the reason why that's so important is because you start to understand the strengths and weaknesses of your cash flow, when it's strong, when it's weak, when you should hire, when you shouldn't, when you should buy equipment, when you should maybe sell equipment. Those things become actual strategic decisions that you make to grow your business. It's a huge thing and it's a, it's a very valuable thing to do to monitor your cash flow weekly like that. And like I said, it's something that a lot of, a lot of fractional CFO firms offer and they should offer it if they're not, but it's something that will definitely help you maintain positive cash flow and at least know when it's going to be weaker and when you should hold off on certain decisions or make others, right? Hope that helps. If you have any questions, let's talk.