cash flow, business math, rule of 3
Published: Friday, January 18, 2019 written by Drew Jackson
View Count: 101
Keywords: A/P, A/R, Cash Flow, Rule of 3
this is a brief synopsis of cash flow and business and how to grow, maintain, survive in tough times and be happy and enjoy what you are doing. If you dare, do you own a business like I do - (have many times over)?
I go back and forth, into corporate life and back out from decade to decade for good reason. This is the road less traveled and for some that seems fraught with risk when in fact, it is more interesting.
Do you understand the value of cash flow, and other items that are essential even before getting more complicated like in interest swaps, product line lengthening, unrealized revenue, good will, float, etc?
I have learned a great deal over the last 30 years of running my own businesses and working with those others who have owned their businesses as well, successfully I might add.
Let me cut to the chase and just say the first items are n my Rule of 3 regarding regarding A/R and A/P are:
1. cash flow is king
2. liquidity is important
3. credit lines should be multiple
let me explain each.
1. Cash flow is king. A/R and A/P needs to be balanced. have you ever had a client not pay you on time? have you had business partners who tend to unbalance the ratio of 50/50 or so in terms of them working less and still getting their percentage? I can say I have experienced the wrong end of that just a few times.
How about NSF (non-sufficent funds) payments or people who just always get your help and then never pay you? I can call that charity to a point and good will to another. Charity to the individual and good will to the corporate entity. Will they get my help over and over? Only if I let it, and then karma steps in and I say, enough is enough.
2. Liquidity is cash. Not all things can be paid for with credit. Having access to liquid money is vital. Sometimes there is a cost and sometimes there is not.
3. Credit lines should be multiple. when you get started in a business, some bank(s) will approach you and give you what you believe to be a good deal on services they offer. Look around. Don't let someone in your organization make the critical decisions for you.
Open up multiple types of accounts at different banks. In case one shuts you out, the other is available. Some of them, their terms will change and you will need to still achieve #1, cash flow.
by the way, there should be an entire class on this for the community colleges and universities. Yale, Harvard, UNR, etc... teaching business finances is not all about the books, vocabulary and the lingo, its the real world experiences that demonstrate, this is what a financial institution offers (good or bad).
more to come...
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