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  • Writer's pictureTim Carlo

Cash Flow in 2024: Your Key to Profitability and Growth




News flash for business owners and CEO: Running your business is a lot more complicated than balancing your personal checkbook. It amazes me how many CEOs think, “We have money, we can make payroll and pay our bills, so we’re ok.”

 

Understanding cash flow is a key to profitability and growth. Do you want to be just "ok,” or do you want to make as much money as possible and grow your business?

 

According to Intuit (State of Cash Flow Report, 2022), almost half of small businesses have cash flow problems, 39% of owners say it was a surprise, and 20% say they don’t know how much monthly revenue they need to be profitable.

dog with a calculator and cat with cash and a graph

 

Turn Cash Flow Data into Information

 

In the most basic terms, cash flow is understanding what liquid resources you have and how it can be used. To determine your cash flow, you need accurate data, insight, and projections for your business:

 

  • What are your forecasted monthly sales? This is imperative to determine your cash baseline.

  • What is your average days sales outstanding (DSO)?

  • What is your average days payables outstanding (DPO)?

  • What are your forecasted expected expenses, including payroll?

  • How many months of cash do you need to have on hand for ongoing operations? Do you have enough cash to cover 2, 3, 4, 5 (etc.) months of salary and fixed expenses (sales cover your variable expenses)?

 

Once you have an accurate idea of what your cash “ins and outs” are with a determined level of confidence, you will be able to forecast your cash flow. If your business is cyclical or seasonal, be sure to incorporate these anticipated differences in your forecast.

 

Understanding your cash flow and profitability allows you to make informed decisions concerning things like profit sharing, investment in sales and marketing, hiring, debt structure, and capital expenditures.

 

Don’t be a business owner who is surprised by cash flow issues. If you want to better understand your cash flow, reach out to me at timothy_carlo@theredsgroup.com.



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