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Let’s Understand How Cash Flow Works!

Let’s Understand How Cash Flow Works!. Presented By Carl Kinker The Controllership Group. Reasons For Business Failure.

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Let’s Understand How Cash Flow Works!

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  1. Let’s Understand How Cash Flow Works! Presented By Carl Kinker The Controllership Group

  2. Reasons For Business Failure • In his book Small Business Management, Michael Ames gives the following reasons for small business failure: 1:Lack of experience 2:Insufficient capital (money) 3:Poor location4:Poor inventory management 5:Over-investment in fixed assets 6:Poor credit arrangements 7:Personal use of business funds 8:Unexpected growth Gustav Berle adds two more reasons in The Do It Yourself Business Book: 9:Competition 10:Low sales • Personal note in my opinion 6 out of the first 8 have direct tie to CASH

  3. Cash Flow Basics • Is cash flow my checkbook balance? • That is a start but cash flow is much more dynamic. • My definition for cash flow – Cash flow is the measurement of everything that either has or will turn into a cash inflow or outflow. • It can presented looking back in time or looking forward.

  4. Ways To Improve Cash Flow • Customer invoicing must be a high priority • Weekly follow-up on collecting receivables • Maintain reasonable inventory levels – reevaluate what is reasonable often • If your competition is getting deposits or money up front. Are you? • Pay payables as due not as they come in

  5. Ways To Improve Cash Flow • Try to finance fixed asset purchases • Be realistic in amounts you are taking out personally

  6. Proper Use of Debt Versus Improper Use of Debt • Matching type of debt with its use • Short term money (line of credit and charge cards) should be matched to working capital needs short term in nature • Term loans should be matched to buying a business, equipment and permanent working capital. Long term in nature.

  7. Why This Is Important!

  8. Measurements Of Cash Flow • Start with your breakeven point. Formula is sales 1– variable cost as % divided into fixed costs = breakeven point in sales • Use numbers above with principal portion term loan for cash flow breakeven point in sales. • Any timeframe can be used for this

  9. What Does All This Mean? • Cash flow is the life blood of your business. Just like our bodies cannot allow a loss of blood on an ongoing basis neither can your business. • You have to understand your cash flow or work with someone that can help you to understand it and make it work for you!

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