When it comes to learning how to drive cash flow in your business, the starting place will always be the same.
You must set a detailed plan and build your forecast with an eye on cash flow.
This may seem obvious, but you would be surprised at how many entrepreneurs try to grow their business without setting a financial forecast!
And I believe that it is due to one big misconception.
The Big Misconception
The big misconception about creating a financial forecast is that, when you do it, you will have to deal with so many numbers and things to look at that it will become almost meaningless to you.
Unfortunately, that is almost always how financial forecasting is communicated to a lot of business owners.
Cash flow is the most important measurement we can look at while creating this financial forecast. If you know your cash flow, you will know how to manipulate the numbers to ensure that cash flow is being generated. And once you set a path for driving more cash flow, you’ll be able to identify what key drivers you need to focus on to generate excess cash.
The New Way to Look at Everything in Your Business.
Often times as entrepreneurs we make decisions and we have no real way to determine whether or not the decision was good or not. We tend to go by our gut feelings with no real measurement on how things went. Instead, we need to have all of our metrics break down into an understanding of ROI.
ROI is the new way you need to look at everything in your business.
You need to understand that every dollar you spend is an investment! So anywhere the dollars go, we need to have an eye on them to make sure that we are getting a return on the investment.
This does not mean that you should become scared to invest your money, because that is not a growth mindset. But you should always track your expenses so you can know what has the highest ROI for your business.
You can also have a black and white perspective if you track ROI. It won’t be a discussion if you did a successful marketing campaign because you can look at the numbers. You can see what is working and what is not working, then kill what is not working.
You will not only free up time in the business, but you will be eliminating a lot of waste and can double and triple productivity by eliminating said waste.
Key Questions That Will Help You Drive Cash Flow.
The answers to these questions will be different for everybody, but having a grasp on them will help you know where to drive cash flow in your business.
1) Can you find a more efficient way of acquiring a customer?
2) Can you find a more efficient way to deliver value?
3) Can you develop a high-value long-term relationship?
Once you get those core questions answered, zoom out and ask yourself these other 3 questions.
1) Who do you ultimately want to be?
2) Where is growth leading you?
3) What will you do with excess cash?
The decisions that you make will impact what type of business you end up creating.
for instance, scaling a business for a while may lead to less cash flow, with a possibility of higher cash flow after that. But if you just grow for growth’s sake, you can end up in a place that you never hoped to be in.
Always be intentional with your goals before moving forward.
Interested in learning more about how to connect your cash flow goals/ vision with your financial metrics? Schedule a strategy call with Kahuna Accounting and we can discuss best practices for driving cash flow, profit, and growth!Schedule Discovery Meeting