Tips To Understanding Cash Flow And Cash Conversion Cycle

Posted by Chuck Kocher
On May 31, 2019

cash flow for business growth

Get a Grip on Cash Flow for Your Growing Business

How can you get a grip on cash flow for your growing business? We’re all familiar with the television ads that ask us what’s in our wallets and tout the advantages of having a particular credit card that offers more cash back, a lower rate, and exceptional service. But if you’re scaling up a growing business you need a lot more than a good credit card in your wallet because nothing drains cash out of a business faster than growth.

What’s in Your Business Wallet?

What you have in your “business wallet” is every bit as important as what is in your personal wallet. Chances are, you have a pretty good idea of how much cash you’re carrying around with you and which credit cards are in your wallet. A surprising number of growing businesses, however, aren’t really clear about how much cash they actually have—or about how quickly they go through it. And yet, cash is essentially the fuel that propels the growth of your business. How can you make sure that you have enough cash on hand to fuel your continued growth?

Consider Your CCC

One of the biggest challenges growing companies face is managing the process of cash conversion. The Rockefeller Habits refers to this as your Cash Conversion Cycle (CCC). You need to have a clear grasp on how long it takes for each dollar you spend to find its way back into your balance sheet as cash. The faster you can turn money spent into cash, the sooner you’ll have it available to grow your business.

First of all, you need to know how long that process takes. Then you’ll want to work out ways to shorten that cycle. Managing your Cash Conversion Cycle should be a Key Performance Indicator (KPI) that you monitor regularly. Try tracking the sources and amounts of cash coming into and out of your business over a 24-hour period. Then extend that to a monthly observation of your expected cash flow. Keep your cash flow front and center! You can’t improve it if you don’t know what it is!

Here’s a First Step to Assessing Cash Flow

Controlling your company’s cash flow is important—and it can also be a little intimidating if you don’t know where to start. As the ancient Chinese philosopher, Lao Tzu wrote: “The journey of a thousand miles begins with one step.” A good first step is to do an assessment of your current cash flow situation. Click on the “Assess Your Cash” button below to begin getting a grip on where your company stands in terms of cash. That will help you take additional steps to transform (improve) your cash flow—removing a significant obstacle to your pursuit of dramatic and sustainable growth.

cash flow assessment

 

Image by mikegi from Pixabay