26 December, 2013

1-5-13 finance: Cash flow cycle

The first 4 business core processes have an arrangement: value creation then marketing then sales then value delivery. Every one of there is related to the 5th process; finance. You need to know what your cash is doing in these 4 processes.

"All the truth is found in cash account"

You may analyze or predict stuff related to each of the processes. But frankly, the only real thing that will never lie to you is your cash account. In businesses; MONEY TALKS

The thing about knowing where your money flows in and out is that you can keep your purchasing power. Running out of liquid money is JUST DEVASTATING

-          Think of your liquid assets like water in a sink, you have to increase the flow-in and decrease the flow-out as much as possible. That would Be possible by:
1-     Get more sales
2-     Get paid as quickly as possible. And DO NOT extend credits, you are running a business not a bank.
The best way is to get paid up-front and in cash and use\secure the money that you use to make\deliver the value
3-     Spend less money
4-     In\near to critical situations: pay bills as late as possible and in credit
-          And I am saying "in critical situations only" because on the long term, that would give you a very bad image\reputation. If you have the money to pay, don't put yourself in debt at all, or just pay back as soon as possible and in cast to gain trust and to have access to this money source without any questions raised about your honesty or abilities to pay back
-          An exception to the previous talk is the money used for marketing. Pay them as late as possible, sooo late that the money you pay for it is the money you get thanks to that marketing you did using the owed money

The long story short: study your cash flow cycle, know where you can keen the sink always full of money and figure out ways to maximize and secure a certain level of purchasing power