Cash Flow Series Part 1: How to Measure Cash Flow
Apr 24, 2023We're discussing the basics of a 2-dimensional vs a 3-dimensional profitability model and how having too narrow of a focus can cause a profitable business to run out of money. Factoring time into your cash flow projections is critical to better understanding your cash flow.
To ensure the long-term success of your business, cash flow is the one thing that every business needs to understand to truly know its financial health. By understanding this for your business, you'll be equipped to make informed decisions and drive your business forward.
They key takeaways from this episode are:
1. Understanding the limitations of a 2-dimensional profitability model.
2. Importance of a 3-dimensional profitability model.
3. The significance of having extra cash on hand.
4. The importance of understanding a business's health, which can be achieved by regularly monitoring and analyzing financial metrics.
What you'll hear in this episode:
[1:00] The basics of a 2-dimensional profitability model.
[1:50] I will tell you a story to help explain how a profitable business can still run out of money.
[3:26] Switching from a 2-dimensional profitability model to a 3-dimensional model where you factor in time.
[4:25] The 3 different ways that money enters and leaves your business.
[7:45] One tip that I use in my business is to have extra cash on hand
[8:45] The one thing that every business needs to truly understand their business's health.
Related episodes:
CFO vs Accountant: Which is the Right Fit for Your Business?
3 Ways Your Business is Leaking Cash
Break the Cycle: Three Ways to Reduce What You Owe in April
Resources:
Cash flow forecast template: https://www.keepwhatyouearn.com/cash-flow-forecast
Connect with Shannon:
Attend The CFO Accelerator Live: https://www.thecfoaccelerator.com/shannon
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The information contained in this podcast is intended for educational purposes only and is not individual tax advice. Please consult a qualified professional before implementing anything you learn.
