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Your cashflow blindspot and how to avoid it

Remember our saying—Revenue is Vanity, Profit is Sanity and Cash is King?

The first two are easy to measure. I’m sure you all know your revenue numbers and your profitability.

But cashflow is mercurial. We all understand cash but where does it flow to?

Often it doesn’t flow into the owner’s pocket does it!

It’s definitely a blindspot as this table shows:

Commercial Flooring Business Consulting

I won’t explain all the quadrants as you can read them yourself. Let’s pick a couple.

All your employees are happy in the top left quadrant.  They know the business is growing (Revenue is Vanity—oops!) and profit margins are up (Sanity is feeling smug).

The bottom left is your quadrant.  You know your business is consuming cash at an alarming and sometimes unpredictable rate.  You probably don’t share this knowledge with others but it keeps you up at night.  Cash is King!

The blindspot of where did your cash go falls into the top right quadrant of not known to you but known to others. Those others include your bank- they have a laser like view of cashflow as it tells them if the money you borrowed from them is at risk. Your CPA knows too.

The problem is you may not see it coming and are blindsided.

Here’s an easy way for you to know your cashflow.

Let’s consider your own bank balance.

At the start of the year you had $10,000 in your bank

At the end of the year your balance is $1,000

So your cashflow was negative $9,000.

It is simply the movement in your net debt. Usually, your business will have three accounts:

  • Cash on hand
  • Short term debt
  • Long term debt

So if we look at Acme Flooring’s numbers for 2019 and 2020:

Commercial Flooring Business Consulting

The cashflow is the difference between $-5,008,000 in 2019 and -$6,114,000 in 2020.

Yes–their cashflow was negative $1,106,000.

This easy way to calculate cashflow should help you avoid any surprises.

Now the quadrant you really want to occupy is the bottom right.  Here your business story and financial story are highly congruent.  It may not be well known to you or others.  This is the realm of Flooring by the Numbers!

If you need help with cashflow we can design cash positive growth as well as improving our other two characters, Vanity & Sanity.  Call us!