Episode 8 // Three Metrics to Managing Cashflow

Championed by our friends at Community Futures Saskatchewan

Covid's nudged many of us closer to the cliff’s edge. Tragically, The Canadian Federation of Independent Business (CFIB) suggests one in six, or about 181,000, Canadian Founders are now seriously contemplating shutting down—this comes on top of the 58,000 businesses that became inactive in 2020.

But listen up, it's not all doom and gloom. Yes, Founders are in a tight spot but even before the pandemic hit, 71% of us we’re closing our doors due to poor cash management, as researched by Industry Canada: Failing Concerns: Business Bankruptcies in Canada.

It's human nature to avoid the uncomfortable work. That is, until we're forced to confront it! So, here's your opportunity. Roll up your sleeves, get to work, and choose to look at Covid as your catalyst, not your kryptonite.

Let’s start by getting smart about our cashflow—how it's earned, received, spent and saved. In this episode of The Gab Lab, NTN Pro, Kirsha Campbell (aka The Cash Flow Maven) is sharing some quintessential cash flow management tips. She takes us through the bottom-line challenges of the roller-coaster cashflow ride and how we can counter the effects without taking on leverage.

Part 1 // Cashflow Fundamentals Laying the Groundwork

Let’s nail the basics. “Cash flow is the lifeblood of your business,” explains Kirsha.

Cash flows are different from your income statement and balance sheet. A cash flow statement will tell you from where you received the cash, when you received it and where and when you spent it. Perhaps, more importantly, cash flow reports provide you with an accurate account of what funds you truly have access to.

Don't assume your bank account balance is telling the whole story.

Here's a rule of thumb: Any accounting entry that does not show up in your cash or bank account, will NOT affect your cash flow.

A balance sheet is an entirely different phenomenon. It shows you the position of your business at any given point in time. If you’re unfamiliar with a balance sheet, think of it like this; sum up your assets and take out the liabilities, what you’re left with is your capital or “net worth”. An income statement is a measurement tool that sheds insight into your business’ profitability, revenue growth, and cost structure. Kirsha aptly points out that as business owners, it is important we understand that profit is not equal to cash flow.

Part 2 // Spotting the Red Flags

Declining revenues, COGs that are wildly inconsistent, and aged accounts receivable are just some of the warning signals Kirsha draws our attention to in Part 2.

She also addressing the elephant in the room—the constant need for capital infusion, bank overdrafts and lines of credit. Keep in mind, the emergency Covid relief we may have accessed, specifically CEBA, CRB, RRRF and HASCAP are loans–they’re temporary band-aids, not long-term solutions.

Keep your eyes wide open and stay vigilant, because businesses never go bankrupt overnight. Kirsha points out, as the Founder you're likely doubling as the business’ CFO – so listen in as she shares with us what we should be watching for, and how often.

Part 3 // Decoding the Remedies

Now that we know the issues, let’s roll up our sleeves and fix them. Kirsha explains the importance of staying on top of our cash flows, with periodic assessments. To make light of the task, ensure you have an accounting chart at your disposal. Being unorganized can be lethal. An equally important element is your master budget which helps you identify the deviations as quarters pass.

Have your accounts receivable ballooned through Covid? Kirsha makes several important recommendations, including factoring the receivables to pump cash back into your business.

Factoring? Hmm...

It’s not that difficult to wrap your head around. You go to a factor and pass on the right to collect your accounts receivable. In exchange, the factor pays you the worth of those receivables upfront, after deducting a certain percentage as a fee. And voila, you’ve liquidated your receivables.

But there's more you can do. Be sure to catch all Kirsha's suggestions in Part 3.

Remember, cash flow forecasts are essential to the financial health and future of your business... so pull up our Cashflow Forecast Template and get to work.

// Download the free tools and templates