Share This:

Today, let’s talk about cash and cash flow in your business.

What is a cash flow system? Every business needs one.

Why do I need one, and how do I build a cash flow system for my business?

Now, cash is king. And if you don’t have cash, and a focus on cash in your business first, you’re actually going to hurt yourself. You cannot make smart decisions about your business, you cannot grow, and you cannot maintain the growth that you perpetuated and been fortunate enough to foster until now. How many of you have sat up late at night staring at your business bank account balance, and wondered where the cash is?  Potentially, when you go and look at your profit loss statement, your accounting, meet with your bookkeeper, or your accountant they say that your business is profitable and that you should be very proud of the work that you’ve done. But if I’m so profitable, where’d the cash go, right?

Too many times I meet with business owners, and I talk to them, and they say, “You know what? Let’s look at my books. Wow, my business is doing really well. It’s pretty strong. It’s great, it’s fantastic. It’s fantastic if I want to borrow more money from somebody else. But where’s the actual cash?”

If you have ever been awake late at night staring at that bank account balance and wondered where the cash is, or you know your business is doing really well, and sales keep coming in, then you need to do something about it, and that is why you need a cash flow system. Why do I need a cash flow system? You need it because you need to know what’s going on with your cash more than your accountant needs to let you know how profitable your business is. Okay?

What is a cash flow system?

It’s tracking your cash on a weekly basis. Cash coming into my business, cash going out of my business.

How do we build it?

It’s quite simple. The cash flow system should be, you every single week, looking at how much cash I have. And it’s going to be simple.

You need a blank piece of paper and five boxes.

The first one, top left corner…

Box One:

How much cash do I have right now? As I sit here today and talk to you, take a piece of paper, and I want you to just draw five boxes anywhere on the page. But I want you to take the very first box, put a little one at the top, and then I want you to write how much cash do I have right now? Go to your bank account balance, and it’s okay if it’s a lot or a little, that’s fine. But I want you to write that dollar figure and how much cash I have.

Box Two:

You can label it with a little number two. How much cash, in other words, what am I going to get paid this week?Now what I think or how much business I think is going to come in, how much cash am I going to get paid this week? I know I have cheques, invoicing, ETF payments coming in this week from clients, customers, or so many clients I’m expecting to walk in the door, here’s how much cash I think I will get in the door. Fantastic.

Box Three:

This is a great one to pay attention to when you’re looking at your cash every single week. When do I pay people?In other words, when is my payroll? Do I pay people the middle of the month, the end of the month, do I pay them every two weeks? I want to know this week if I have to pay people, how much cash do I need to pay those people? And no, I don’t mean you have to pay everybody cash.  I know that I’m going to write cheques, or my automated payroll system is going to kick in and take out so much money to pay my people and pay myself this week.  I know I have to keep planning for my business going forward, how much money am I going to need to pay my people next week when payroll comes around? Or the middle of the month? Or the end of the month? Make sense?

Box Four:

How much in dollars, actual dollars, do I have to spend on my expenses this week? Does my mortgage, rent or lease payment come out this week?  Do I pay my utilities, or do I have to pay my company credit card this week? Do I have to pay for one-time expenses?  Do I have to pay for anything other than payroll this week? Make sense? The reason we want to do this is,  box one,  is how much cash I have. Box two is how much cash I’m going to bring in. Make sense? Okay. Box three,  is how much cash or money I’m going to have to pay people to continue to work for my business, alright? Box four is how much cash or money I’m going to need to spend this week for my business to continue to operate. Right?

Box Five:

This is the important one that ties together an entire month. How much revenue have I made this month so far?Why would that be important, if I’m going to look at my cash in a week? Because if I start week one, and let’s say we start November first. My first seven days, I’m going to do a cash counting system, and I write down all my cash I start the week out in the bank. How much comes in that week from the first to the seventh, when I have to do pay payroll even if it’s on the fifteenth of the month. The first week of the month I have to pay so many dollars out in the form of expenses,  And I’ll have zero dollars in box five for my revenue for the month.

When I come to day eight to fourteen, I’m going to have, here’s my cash balance at the start of the week, here’s how much I’m going to make this week. This week I have to watch out for payroll, it’s coming on the fifteenth, and the fourteenth butts right up against it. So, I know I’m going to need money for payroll. Here’s how much in box four I’m going to spend to operate my business this week. And box five, I made so much money last week, here’s the amount month-to-date so far that I’ve got in my revenue box.

So, our cash flow system is straightforward. It’s just five things, but it’s something that we do not do very well as business owners, and we often hide from it. So you want to make it very simple to track your cash, and it’s okay if it’s not perfect and it’s not pretty to start with. But you must start a cash flow and a cash analysis system in your business.  Cash more than anything else is going to tell you whether you’re succeeding or whether you’re failing running your business.

A funny thing about profit cash. When your account or bookkeeper tells you that you are highly profitable, your profit and your profit margin, in other words, how much money I make overall and get to keep, whether it’s a little or a lot, okay, does not necessarily correspond to how much physical cash I have. But if I focus on how much cash I maintain every week, month, and throughout the year, my profit will start to climb. It’s a very funny trade-off that we look at.

So, cash flow system is vital for your business to make sure that you’ve got a very robust system in place, and that you know every week and every day what’s going on with your cash. We’re going to look at how much cash you’ve got in the bank this week to work with, how much we’re going to bring in this week, when we have to pay our people and how much money we’re going to need for that. What our expenses are for that week that we’re going to need cash that we have to earn or have to start the week with, and of course, how much we have made in revenue month-to-date so far.

Does that make sense?

Now, if you’d like to have a little better example about this, we’ve got a free tool for cash flow analysis.

You’re going to be able to download our cash flow spreadsheet. It’s going to help you get started. It’ll give you a head start. And then that will give you an idea what’s going on with your cash, and then of course, what’s always best? Talk to somebody who can help you to build one. And in fact, after you have a look at our cash flow spreadsheet, feel free to drop us a line.

Would you like a copy of our weekly Cashflow Sheet for yourself? Click here!

We’d love to talk to you about it.

Have a great day.