Are you frustrated with how volatile business finances and cash flow can be? One minute you’re rolling in the dough and the next minute it’s gone and you’re living off of Dorito sandwiches? The feast or famine cycle in small businesses is REAL and it’s because of poor cash flow management.

Oh yes, my friend, cash flow is the runty sidekick to profit. Profit gets all the glory, but cash flow does all the work.

This week on the Andi Smiles Show, I’m sharing 5 tips to help you avoid the dreaded feast or famine cycle in your business. You’ll learn about how to manage your inflow, outflow, and how to look at your business finances holistically.

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What is cash flow? (2:26)

Hooray we’re going to talk about cash flow today! A lot of times when I talk about cash, flow people are like “Cash flow? Whatever. Okay bye. See you later, Andi. Come back when you’re talking to me about profit.” That is real. BUT cash flow is super important in your business- even more important than profit. Yes, you heard me. 

Cash flow is all the money that comes in and out of your business in any given period of time. It could be a year, it could be a month, or it could be a week.

There are two states that your cash flow can be in:

Cash flow can be in a positive state which means that you have more money coming in than going out. In another period of time, your cash flow can be in a negative state, which means that you have more money going out than coming in, at any period of time.

Obviously the state that our cash flow is in is fluid. It’s fluid because one day you may have a big expense which would put you in a negative cash flow. And some days you’ll have a big deposit without expenses that will put you in a positive cash flow.  Which means cash flow is not a static state that your business will stay in.

There are two parts of cash flow.  There is inflow which is all the money that comes into your business. This is also called revenue. This is pure undiluted money that is coming into your business. On a daily basis, weekly basis, or monthly basis depending on your business model.

Then there is an outflow. Outflow is all the money that goes out of your business.

When I say all the money that goes out of your business, I do NOT just mean business expenses. We are talking about the actual cash money that goes out of your business. That can be credit card payments, paying yourself, savings for taxes or savings for general business investments. There are many ways money can move out of your business. And this is where people get really, really confused about cash flow because they think, “Well, I’m profitable. Doesn’t that mean I have a positive cash flow?”

Nope, nope nope.

BECAUSE a lot of these things that I mentioned – your savings, your debt payments, your owner’s pay – don’t show up on your Profit & Loss report. You could be profitable, and still in a state of negative cash flow.  That’s why it’s really important to understand that cash flow and profit are not the same thing.Rather, they are in a clique together. They’re sort of friends but they’re not twins. 

Another important things to know about cash flow is that cash flow is real money. It’s not money that you expect to get. It is money that you are actually getting.

If you think, “I might land this really big client. They’re going to pay me in a month but they haven’t signed any contract or anything yet.” That’s that’s not inflow. You do not have that money. It’s not hypothetical money. Cash flow is real money.

Let’s talk about cash flow management.

I have this analogy that cash flow management is like almond butter on toast. If you’ve ever had a piece of toast with almond butter, you likely spread that nutty goodness around. You spread the almond butter over the entire surface of the toast. You don’t just want to put a blob of almond butter on one part of the piece of toast and then get a gooey, gross bite.

You want to spread it around, and every single bite that you take of that toast has a delicious bit of almond butter on it. That’s how your cash flow should be! Your cash flow should be spread around. It should be evenly distributed in your business instead having all your money come in at one point and then all your money go out at a different point in crunchy globs. 

We want your cash flow to feel like an even spread of almond butter in your business so you are not in feast or famine. 

organize business finances

Managing Your Inflow (08:39)

The first thing about managing your inflow is you need to understand when you get paid, how much, and the way in which money comes into your business. 

When is what time of the month you get paid. If we break it down by week, what parts of the month are you being paid and how much? Are you on a monthly retainer system where most of your payments are coming at the beginning of the month? Or, are you somebody that sells a lot of small digital products, which means you have small daily inflow? Do you work on a consulting basis and usually have 3 clients a week so you kind of have a steady weekly inflow?

Everyone’s business model is different.

Ideally your business model is diversified enough that there are different ways that money comes into your business. Maybe you have retainer clients that pay you at the beginning of every month and then you sell digital products that help even out your cash flow for the rest of the month. The ideal set up is to have things (the almond butter on toast) spread out and have diversified income streams. 

When is also how often you get paid. 

Different business models have different payment structures. For example, a web developer may get paid three times for one project over the course of 3 months. That would have a big impact on cash flow. 

Do you get paid a deposit in the beginning of a project? How much time elapses before you get the rest? Do you do billing every week or every month or when a project is completed? How often are you getting paid? 

Take Action

To understand your cash flow, start by mapping your inflow schedule for your business. This will help you understand the details of how much money is coming in at certain periods of time. 

When mapping your inflow, keep an eye our for your peaks and your dips. At what point in the month and what week in the month does inflow peak? At what point in the month does your inflow dip?

When you look at your dips and your peaks, think about how to spread this out like the almond butter. How do you eliminate the peaks and valleys? Because that’s the feast or famine in your business which sounds like, “I got a lot of money! Now, there’s no money. I got money! Now, there’s no money.”

What actions can you take to spread out the inflow over the course of the month? It could be changing your billing structure, putting large payments into savings and slowly dolling them out over the month, or introducing another income stream stream during the slow times. 

It’s demo time! In the video at timestamp (14:30) you’ll learn how to use the cash flow mapping worksheet to help you map out your very own inflow.

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Managing Your Outflow (24:13)

Managing your outflow is really about understanding what money goes out of your account, and when the money goes out of your account. The easiest way to begin the mapping process is to start with your automatic bills and recurring expenses. If you’ve done the spending audit, then you already have a list of all of your automatic bills and recurring expenses (and if you haven’t done a spending audit, read this post and use the spending audit steps to help you map your outflow)

Once you have a list of recurring expenses, go on to Part 2 of the Spending Audit and list your variable expenses.

Alternately, in Quickbooks Online, you can run a monthly Profit & Loss report divided by week which will give you a breakdown of your spending, by category, week to week. 

Next, we need to consider all the things that don’t show up on your Profit & Loss report. Consider…

What about your owner pay?

What about what you put away for tax savings?

What about your regular savings rate?

What if you have a business loan or if you have a credit card you’re trying to pay off?

None of these show up on your Profit and Loss report which is why, when mapping your outflow, you need to go beyond the Profit & Loss and examine ALL the ways cash moves out of your account. 

Take Action

Step 2 of the cash management process is to map your outflow schedule for your business.

It’s demo time again! Visit the video at timestamp  27.55 for this demo.  

Managing the Whole (33:30)

Managing the whole is where you take the information that you’ve just collect and use it in a strategic way for your business. This process answers those big questions that you probably have like,

“Should I buy this right now?”

“Do I really have the money for this?”

“Is this a good time to make this investment?”

When you’re managing the whole, you’re examining WHEN more money comes in than goes out and WHEN more money goes out than comes in. When are you in a state of positive cash flow and when are you in a state of negative cash flow? 

The first thing you do in step 3 is assess your finances. Look at your spending habits and income patterns to assess when you’re in positive cash flow, and when you’re in negative cash.

After you’ve assessed, make adjustments.

You may realize that you’re in a serious negative cash flow state the second week of the month and you gotta do something about that. Do you bring more revenue in during that time of month? Cut back spending? How do you spread the almond butter (aka cash flow) out on the toast?

The last thing you’re going to do is experiment with your adjustments.

You have to try things out when were talking about cash flow management. You will find your sweet spot. This initial process is a draft, and you can use the cash flow mapping spreadsheet every month to really nail down your numbers.

Until you implement changes and track the progress, it’s all a hypotheses like, “If I do this thing differently how will this impact my cash flow?” Before you can answer that question, you need to test out.

Take Action

Meet me at timestamp 35:59 for the deets on Step 3. I’m going to go back to the spreadsheet and show you what that looks like.

Remember, cash flow management helps you decide on these questions:

‘When should I be buying?”

“When should I be making investments in my business?”

“Can I really afford something right now?”

In short, cash flow management helps you understand the best times to spend money in your business and when you need to rein it in.

Let’s talk about some other things that you can do with cash flow mapping spreadsheet.  You can put in your different income streams, your tax savings, enter your expenses, and decide on your owner pay.  Play with these numbers and see what’s left so you can visualize your cash flow goals. These are your goals regarding your whole finance system

As you can see,  I’m obsessed with making spreadsheets. Want to get your own copy of the spreadsheet I used in the demo? I’ve included it for you below. Access it below and take charge of your cash flow. 

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