Centennial Revenue Management

What Does Cash Flow Mean in a Pandemic? Are you Prepared?

What is in store for your business in the coming months as we can see a light at the end of this Pandemic tunnel. I implore you to ask yourself these questions:

  • Do you still have cash in the bank to make payroll and continue to navigate these uncharted waters?
  • Are you going for another round of funding to help your business survive and/or thrive?
  • How much debt are you carrying when your new loan payments kick in?
  • Will that funding be enough to get you to 2022?
  • Or, will you run out of money in 12 to 18 months because you are still spending more money each month then your Revenues can support?

As a business owner or CEO, your perspective on financials should be different from your CPA’s or bookkeeper’s. It must be based on understanding the full impacts of cash flow so that the integrity of your financials enables you to make sound business decisions. Do not ever make decisions based on your net profit alone. Especially if you are servicing debt!

Cash is King!  It is especially important to pay close attention to cash flow now more than ever! I know many business owners that are sitting on a “boat load” of cash from receiving grants and EIDL loans. I also see a storm in the making if business owners do not take the time to educate themselves on cash flow in their businesses. Whatever money habits business owners had going into the Pandemic and losing control of their revenues, it is likely that those same money habits will slowly drain those cash reserves in 2021.

Set yourself up for success and find empowerment and peace of mind in your financial arena. Every business owner needs a three-dimensional view of cash flow. Consider these three components in the cash flow arena:

#1: Look in the rear-view mirror to assess how your business is trending. What is the average monthly outflow of cash compared to your average monthly cash revenues?

#2: Identify your monthly budget to control the outflow of money against the money coming in.  (This includes debt servicing, owners draw, equipment purchases.)

#3: Forecast cash requirements in the months ahead for things like taxes owed, additional payroll and past due vendor bills to be paid.

My solution is to replace a cash flow statement with a cash flow forecast! The “Dirty Little Secret About Cash Flow” is looking 90 to 120 days from now to see how much cash you will still have in the bank. Many business owners are in crises and are watching cash flow on a daily or weekly basis. That money is already in play!

The sweet spot for managing cash flow is 90 days from now. That means you must implement a budget, good bookkeeping, and create proactive strategies to bring more money in then is going out. Or in the case of a Pandemic, create proactive strategies to control the money going out against projected revenues coming in.

Cash flow is not about net profit or net loss. It is about the movement of money into and out of your business and on your P&L and Balance Sheet. If you can learn to accurately project cash outlay against projected revenues is a guarantee to give you empowerment and peace of mind at the end of the day.