What Are Your Cash Flow Drivers?

Posted on May 22, 2018 by Kevin McArdle in Execution, Lack of Control, Profitability

Cash Flow Drivers

One crucial factor that can make or break your business is its cash flow—how much money is going in and out of your organization. However, despite the importance of having cash available, very few companies really dig in to the specific levers that are driving both cash flow and overall profitability.

There are only two things that drive your cash flow higher: more sales and/or fewer expenses.  Although this understanding is crucial to operating your business, it doesn’t automatically translate into more cash. To help the business owners, CEOs and executive teams we work with, we recommend a tool we call “The 8 Cash Flow Drivers” to pinpoint the items that are actually driving cash flow. Although some of these will be familiar, there may be a few numbers in this list that you aren’t considering on a regular basis.

The 8 Cash Flow Drivers™ include:

  1. Price – How much are you charging?
  2. Cost of Goods Sold (COGS)/Margin – How much does it cost to deliver your product or service? How much are you making on each transaction?
  3. Ancillary Sales – What additional sources of revenue are you generating? For example, soda sales at a gas station would be considered ancillary revenue.
  4. Service Time – How much time are your employees spending to take care of your customers?
  5. Errors – How much time and money do you spend on mistakes or paying to compensate dissatisfied customers?
  6. Compensation/Labor Costs – How much are you paying your employees and team members?
  7. Accounts Receivable (A/R) Days – How many days does it take you to collect payment on your products or services sold?
  8. General & Accounting (G&A) Expenses – What kind of day-to-day expenses does your business incur?

By understanding each one of these items—and how they affect the money going in and out of your business—you can begin to move your business toward positive cash flow, so you’re not struggling to pay your expenses. These eight drivers will also help you increase your profitability overall and improve your bottom line.

Executive Insight: Designate one person to be in charge of each of these drivers. For example, the person in charge of price would be responsible for researching how a price increase would affect sales, while the person responsible for margins would be prepared to discuss the potential impact on that calculation. Once you have established who is accountable for each number, ask for regular reports on how these numbers are doing so you can keep tabs on each.

These eight cash flow drivers are the most important numbers in your business, the ones that determine whether it’s time to make changes in the way you do business to ensure your organization’s survival—or whether it’s time for you and your team to celebrate your accomplishments.

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