It’s often said that revenue is vanity, profit is sanity, but cash is reality. Because cash flow is so crucial to business success, and such a common pain point for small business owners, understanding what drives your business’s cash flow is essential.

Clients John and Jodie were constantly in cash flow crisis mode. They had a heightened interest in controlling it when cash was really tight but relaxed their monitoring when their bank account looked a little healthier. Most often their focus was on the next 30 days and not beyond that. We did an analysis of their cash flow cycle and it was clear that the amount of time it was taking to turn their product into cash was leaving them out of pocket more often than not. This meant that, in order to bridge the cash gap, they were resorting to overdraft facilities and not paying suppliers or the ATO on time.

We worked with John and Jodie to educate them on what drives their cash cycle, work out what their magic numbers were and develop a cash flow improvement strategy for the business. In their case, two of the simplest strategies we focused on were reducing debtor days and managing the sales pipeline to stabilise revenue.