In this section, I will share the top 10 common cash flow questions I have been asked in the last 17 years. While I spent a year creating the cash flow hub, I wondered what else I could do to help you through your cash flow challenges.
So I have dug out from my inbox, going as far as I could, and also from my memory, I have found these are the most common cash flow questions I get asked. I thought you might find it helpful, as you may be having some of these questions in your mind right now.
Here’s the best part. If you can’t find an answer to your specific cash flow question, you can send me a question using this link, and you will receive an answer in 72 hours.
Remember, the cash flow hub is for an entrepreneur, a business owner like you, created by an entrepreneur, a business owner just like you.
So let’s get started.
1. How Do I get a grip on my Cash Flow?
Soon after I had woken up, on a foggy winter morning, I received an email from one of my NEW clients.
This client was doing about £ 4.4 million in annual revenues. His email scared me because the subject line said: “Where is my cash, Shishir? It’s all gone.” I quickly opened and read the rest of the email.
Inside that email, he asked me, “Shishir, how do I get a grip on my cash flow? Why doesn’t my cash flow look like my profit and loss statement? Why are they different?”
This was not the first time a NEW client had asked me this question.
From the email, I sensed that the client was fearful and distraught that his company might go bust. He was finding it hard to believe that his business with millions in revenues could have negative cash flow?
That’s why he wrote that email with a scary subject line.
So, he asked – How do I grip on my cash flow? – is one of the most common questions I get asked because most entrepreneurs don’t have much control over their cash flow.
Here is an edited version of what I shared with him:
First things first, to get a grip on your cash flow, Manage, Analyze, and Project cash flow on a weekly or monthly basis.
Manage – to control cash flow what you are going to do weekly.
Analyze – to see how well you manage cash flow every month.
Project – to predict future cash balance today. You can use cash flow projection as a base to manage cash inflow and cash flow weekly and monthly.
To do it all simply, you can follow The MAP Method.
To learn more about The MAP Method, check out this video.
2. Where Am I Cashflow Wise? Is My Cash Flow Healthy?
You are not alone if you have asked yourself the same question and feel anxious about your cash position.
Because this is a question that I get asked often.
Here’s the thing.
The only way to answer this question is by having an accurate cash flow statement.
Your cash flow statement is like the mark sheet for your business. It tells you how well you have created, controlled, and compounded cash flow.
To have a healthy cash flow, You need to have two things for a healthy cash flow:
1) Positive cash flow i.e., having a bigger cash inflow than cash outflow in any given month.
2) Cash flow cushion to cover fixed expenses for at least three months, preferably 6 months, to cover for the time when cash in flow dries up suddenly as it did for many of us during COVID.
You can relax once you have these two, knowing that your cash flow is healthy.
If you are curious to find out how healthy is your cash flow. Take this quiz and discover your situation in less than 60 secs and also personalized action you can take to improve your cash flow.
3. How to Create Cash Flow, When There’s None?
It is the kind of question you didn’t even know you could have asked and benefited from.
So, lack of sales is a big challenge that entrepreneurs face. This leads to no or low cash inflow.
This is a catch 22 situation.
Because as an entrepreneur, you can’t invest in marketing or get an extra helping hand to sell more when you don’t have extra cash.
What can you do about it if you are in this situation?
You can get creative.
Here is what I did when I found myself in this situation.
I remember starting my business with limited funds.
I reached out to my network and sought help from someone with different skill sets than me. We bartered skills. She didn’t pay me, I didn’t pay her, and we both benefited.
I used my limited funds elsewhere to create regular cash inflows. And, slowly, I got out of this no cash flow situation.
Have you tried something similar?
Let me know by tagging on social media.
4. How does cash flow in my business, Shishir?
My clients ask me a variation of these questions:
“I Don’t Understand the Difference Between Cash Flow and Money.”
“I don’t understand profit and loss. I wish someone could make it easy.”
“How does cash flow in my business, Shishir?”
When I get asked these questions, I think about when I went to the hospital, and a nurse explained how to take the prescribed medicine.
She said to me, “Take this medicine BD and that medicine OD.”
With a blank look on my face, I asked her, “What do you mean, BD and OD?”
She had assumed I knew about BD and OD and replied, “ BD – both times a day and OD – once a day.”
Now I’m not being funny here. In my world of finance, OD means Overdraft or Overdrawn. So how am I supposed to know, OD means to take medicine once a day?
In the same way, a beginner entrepreneur may think the money in business is his or hers to take. Still, a financially savvy entrepreneur knows that money in business and your pocket are two different things.
To understand this difference clearly, you need to know how cash flows in business.
Money in your business has to go through FIVE stops in your business before it reaches the ultimate destination, your pocket.
Let me take you through each of these five steps by clicking here
5. My Cash Flow Is Negative? Should I Take a Loan or Overdraft Facility?
“Shishir, my cash flow is negative. Should I take out a loan or overdraft facility? Or can I turn around the situation and become cash-flow positive without needing bank support?”
This was the question that a dental business influencer asked me when he reached out to me around 18 months ago.
He wanted to get a second opinion on whether he should go for a loan or overdraft facility.
Well, if you are dealing with the same question, then do it based on the following factors:
- What’s your sales pipeline for the coming months?
- Can you make the business leaner and operate with fewer resources?
- What’s your payback ability?
- What are the interest charges for a loan vs. overdraft (OD) facility?
And there are other factors too, to take into account.
As for the dental business influencer who became a client, we decided not to extend and increase OD or take out an additional loan, which would have been the easier option in hindsight.
He is glad we did it the hard way.
He has cleared the overdraft and now has £297k ($414k) in the business bank account. Some of the cash relates to Government-backed grants and loans, but the business generates most cash.
6. How Will a Sales Dip for a Month Affect My Cash Flow?
“Shishir, I get worried. How much a dip in sales in one month would affect my cash flow?”
A dip in sales results in a dip in cash inflow.
If one single month’s dip in sales seriously affects the ability to pay for fixed expenses in the business, then it is a cause of major concern.
To understand the impact of low sales, you also have to consider the size of the business. For example, a business that needs to plug in an extra $100k cash to cover the dip in sales is going through a bigger risk than a business that only needs to plug in $10k.
Usually, a one-month dip in sales will not hurt cash flow in a business real badly. However, if it continues for a few months, it may even lead to business collapse.
You might want to check what affects cash flow as it will give you a broader understanding of relationship between sale and cash flow as well as other levers affecting cash flow.
7. Which Part of the Business Should I Focus on improving Cash Flow?
“I work so hard and have hardly had any time for myself. I have been so busy serving clients, and every month, there’s hardly anything left for me when I look at my bank balance. Why is that, Shishir?
I know some of my products perform better, but I don’t have clarity on which one to focus on.”
This is what one of my clients asked me. And, many others ask similar questions.
The thing is, it is not fun to put in the effort to serve your clients if you hardly have anything to show for it in your bank account.
It just means you don’t have financial clarity, which product to focus on to have the biggest cash flow impact in your business.
The way out of this is to find out which your most profitable product is, one that offers the fastest path to cash and has the most significant cash impact in your business.
Then focus all your attention and resources there.
If you feel like you are running a business blindfolded and want to have cash flow clarity, then here’s what I have for you.
8. What to Ask Your Accountant?
This is a typical one and a question that smart clients ask me.
Ask your accountant questions like:
- How can I help you to help me to grow my business?
- How can you help me to manage my cash flow?
- By when and what information/data do you need to have my accounts done on time?
- How can I be sure I have claimed the expenses to minimize my tax liability, make my tax season smoother, and have industry-specific tax regulations I should be aware of?
- What are the things I can do differently to grow my business? Am I making any cash flow mistakes? What do I do if I can’t afford to pay the tax bill?
When you ask your accountant these questions, you’ll create a win-win relationship and help your accountant help you in the best way possible.
9. How Can I Invest in Business Growth, Without Risking My Hard Earned Money?
“Shishir, I want to grow and know I need to invest in it, but I fear losing my hard-earned money. Is there a way to limit my downside?”
You see, one of the common causes of business not growing is a lack of marketing investment.
Do you ever think that you should be further ahead in your business?
Then you look at the opportunities you missed or times when you did not invest in marketing because you feared losing money?
You’ll find my FOUR STEP framework useful if this is you.
With the FOUR STEP framework, you can transform your financial fear into a fortune.
I call this framework the Financial F.E.A.R. Remedy Framework.
- Where F in F.E.A.R. stands for Fact fluency.
- E stands for Experiment.
- A stands for Accountable, and
- R stands for Rightful Contracts
Let’s understand each of these a little better and go through these step by step.
F = Fact Fluency
What are the facts in the case of a business?
Numbers do not lie nor generate in a vacuum. Numbers tell a story.
They tell the story of how your commercial decision has turned into action and action into numbers. There are different numbers that you need to be fluent with. Like, what are the margins? What is the breakeven cost per lead?
E = Experiment
With the numbers, you know you can run small tests.
For example, when you know that you have $100 or $10,000 cash to invest in the market, you can take a fraction of that to test an advertising medium or two.
So, you can put some money to run ads on Facebook, Google, and LinkedIn and see which of these platforms work better for you. And, if you find Facebook performs best for you, you can test variations of ads there to dig even deeper.
While testing, you don’t have to spend huge amounts of cash. Instead, spend an amount that will not hurt you but that gives you enough data to know what works. So experiment to get the best return on your investment. I call it Test and Invest.
This is also how you avoid financial fear because by testing, you can take a small risk, and when you know what works, you can play a bigger game.
Think of a vaccine. It first goes through animal trials and then multiple human trials to ensure its safety. In business, we test marketing and other investments.
A = Accountable
Hold yourself accountable for your actions.
That is the only way to grow your business as well as yourself.
Keep running experiments the way I shared above.
If it works. Great. If it doesn’t, I believe you haven’t wasted the cash, you have learned something new, AND you have gathered data that shows what works and what doesn’t work.
I believe there is no such thing as failure. You either earn, or you learn. I would much rather be in a position to either earn or learn rather than not do anything about it.
R = Rightful Contracts
When you are ready to invest in your business growth, you need to enter into a contract with the other party that states you invest X, and you get Y in return. So there is a certainty.
If you follow this four-step framework to mitigate the fear of failure or losing money in your business, you’ll increase your chances of winning.
10. How Can I Improve My Cash Flow?
If you have this same question in your mind, know that there are two ways to improve cash flow in your business.
Increase Cash Inflow
Decreasing Cash Outflow
For remembering and implementing these two, remember the three words I use to improve cash flow.
CREATE, CONTROL, COMPOUND.
Create Cash Flow = Increase Cash Inflow
Control Cash flow = Decrease Cash Outflow
Compound Cash flow = Increase cash inflow AND Decrease Cash Outflow.
Here are three tips you can use to increase cash flow FAST.
- Send Invoices immediately as soon as the work is completed
- Provide different payment methods for your clients to pay you.
- Have a credit control in place
Here are the three tips you can use to control cash flow immediately.
- Scrutinize bank statements every six months to get rid of any unnecessary expenses.
- Schedule a supplier payment run so you know in advance how much to pay and when
- Have an internal control to approve the bills to pay so that you are not paying for something you didn’t have to.
When you do these two – Create/Increase and Control/decrease – together, you end up COMPOUNDING YOUR CASH FLOW.
That’s how you can improve cash flow in your business.
If you want to go deeper on this topic. Here’s a useful section for you on cash flow improvement.
Do you have a burning cash flow question unanswered occupying your mind space?
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