Cash Flow Forecasting & Management Series: Operating Cash Flow For Business Success

Updated: Feb 20

The lifeline of your business holds onto these major elements: cash flow and profitability. Without a positive flow of cash, a business would not survive. At the same time, business owners need to maintain a profitable cash flow for their business. That’s when effective financial management comes into place. Financial management is a tool used to analyze information in a business for it to sustain and thrive.


cash flow - operating cash flow

In this solo episode of the Cash Flow Forecasting and Management Series, we dive into the topic of monitoring, managing, and modeling cash flow as part of a business strategy. In this discourse, we focus on the benefits of operating cash flow to ensure financial security by studying each step.


Do you want to adopt cash flow operations in your business? Stay tuned to this episode!


Here are three reasons why you should continue reading:


  1. Learn about the different types of cash flow.

  2. Determine how to operate cash flow effectively.

  3. Understand why operating cash flow is beneficial for a business.

Resources:

Cash Flow Types


Transferring money into and out of your business is called “cash flow”. There are three types of cash flow that business founders are yet to understand.


The first type is known as the investing cash flow, which is related to purchasing big-ticket items intended to generate profit in the future. Investing cash flow could apply to both product-based and service-based businesses. The second type is financing cash flow. It involves the receiving of external capital from investors or lenders. The last type is operating cash flow, which measures the generated money of regular transactions in a business.


Operating Cash Flow


The first step of a cash flow operation is monitoring cash flow by keeping your finger on the pulse of your business. When you continue to observe your own cash inflow and outflow data, you would be able to set a date on when your business would need to stop its operations due to insufficient revenue — known as the runway date.


Managing cash flow is the second step of operating cash flow. Maintaining a positive cash flow means that you are prepared to administer your business while being proactive about risks and growth opportunities. At the same time, you are reviewing the day-to-day business transaction to ensure your cash inflow exceeds the outflow.


Finally, modeling cash flow will answer the questions many business founders have been wondering — such as whether their business cash flow could support potential risks. Mastering this final step indicates that the business owner is articulate about the causes and impacts of events on their cash flow. Essentially, your business would more likely be resilient if your cash flow excels several stress tests.


Operating Cash Flow Benefits


The first benefit of an effective cash flow operation is knowing your runway dates and understanding your levers to extend those runway dates. Then, it would signify whether your business is able to endure risky scenarios, granting clarity and easing decision-making processes. Altogether, you can effectively prioritize your plans and take the right actions for your team and stakeholders.


Powerful Quotes

“[Regarding dry run of financial management] Remember, a tool is just a tool. It won't take any action unless you as the founder know how to use it the right way, how to analyze the information and use it regularly.”

“Cash flow is the movement of money into and out of your business. But many founders don't understand there are three types of cash flow.”

“[Regarding monitoring cash flow] …you need to continue observing your own cash inflow and outflow data, and has the ability to find a date on the calendar when your business would have to close due to not enough revenue.”

“Depending on the size of your business, if the runway date on the calendar is less than three to six months, you better figure out a plan right now how to extend the runway date.”

“When you start monitoring, managing and modeling your cash flow….. you have stressed past against a variety of imagined scenarios so you know the runway is solid longer, and your decision-making is more straightforward, not only you have clarity in mind.”

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Have any questions about business finance? You can contact me through LinkedIn or schedule a chat with me at any time. You can also suggest topics you're curious about for future episodes to help your business grow. Thanks for listening!


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To fueling the life you want to live,


Christina


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