Grow Your Cash Flow

It’s not unusual for a business to focus on top-line revenue growth or expansion into new geographic areas. One challenge with the growth of top-line revenue is you normally don’t grow your cash flow at the same percentage.

When we assess the financial statements of growing businesses, we find they do not grow their cash flow at the same rate they grow their revenue. Some business went as far as producing negative cash flow, put the business at risk, and also increased their working capital requirements.

The challenge of growing a business and not growing your cash flow can be overcome with astute management of financial KPI’s.

The financial KPI’s below monitor how you are growing your cash flow or how you are not. There are a vast number of KPI’s however the ones listed lend themselves more toward cash flow.

Current Ratio reflects your business’s ability to pay all the financial obligations in one year. This KPI takes into account your business’s current assets such as account receivables, and current liabilities, such as account payables.

Your burn rate KPI reflects the rate at which your business is spending money on a weekly, monthly or annual basis. This basic metric can benefit small firms that do not undertake the extensive financial analysis.

The Working Capital KPI measures your business’s currently available assets to meet shortterm financial obligations. Working Capital includes assets such as available cash, short-term investments, and accounts receivable, demonstrating the liquidity of your business (the ability to generate cash quickly).

Your current accounts receivable (average days receivable) is a financial KPI measure the amount of money owed to your business by its debtors. The Current Accounts Receivable metric helps to estimate the upcoming income and calculate the average debtor days, showing how long it takes for an average business partner or client to pay back their debt.

Your Inventory Turnover KPI indicates how efficiently your business sells and replaces its inventory during a particular period of time. It reflects your business’s ability to generate sales and quickly re-stock.

Your accounts payable turnover indicates the rate that your business pays its average payable amount to suppliers, banks, and other creditors. If the turnover ratio is falling compared to previous periods, it might indicate that your business is having troubles paying back its debt. If the turnover rate increases, it means that your business is paying back its suppliers at a faster rate than before.

Budget Variance is also a frequently used project management KPI, indicating how projected budgets vary compared to actual budget totals. The metric is used to evaluate whether the budgeted or baseline amount of expenses or revenue meet the expectations.

Your payroll headcount ratio is a financial metric which shows how many staff members are engaged in payroll processing compared to the total number of employees. The Payroll Headcount Ratio indicates the number of staff in your business that is supported per one dedicated full- time employee.

Your day's sales outstanding is a financial KPI which shows the current payments your business is due to vendors (Anyone who provides goods or services to your business or individuals). High vendor expenses might indicate that the business is having troubles paying to its vendors and suppliers on time.

Your business's Debt to Equity indicates the capacity of a business to use shareholder’s investments efficiently, generating high profits. The Return on Equity shows how much revenue your business generates for each unit of shareholder equity.

There are easy ways to implement setting budgets, comparing budgets to actuals, and monitoring the important KPI’s to grow your cash flow while you are growing your business.

If revenue growth is important to you and you want to make sure you grow your cash flow at the same time and keep your business out of financial stress then talk with us about implementing a robust financial monitoring system.

ActionCOACH-DS Business Coaching uses highly effective financial, structuring and forecasting tools to assist business owners to grow cash flow in sync with business growth.