{"id":11409,"date":"2021-03-31T00:00:00","date_gmt":"2021-03-31T00:00:00","guid":{"rendered":"https:\/\/imagineapps.mx\/blog\/https-imagineapps-co-blog-cash-is-king\/"},"modified":"2021-03-31T00:00:00","modified_gmt":"2021-03-31T00:00:00","slug":"cash-is-king","status":"publish","type":"blog","link":"https:\/\/imagineapps.mx\/es\/blog\/cash-is-king\/","title":{"rendered":"Cash Is King!"},"content":{"rendered":"The key for corporate finance is the business cash flow – First it\u00b4s important to start from scratch. Note: this article is intended for Non-Financial Business Owners \/ Founders\n\n\n\n
What is Cash Flow?<\/strong><\/p>
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Cash Flow (CF) is the amount of money on an organization, increase and\/or decrease. Normally, we measure the cash generated and consumed in a specific interval of time, with that track there\u00b4s a chance to analyze the historic periods, the status quo as well as forecast the flow behavior for the next periods.\u00a0<\/p>
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Normally, businesses are run without considering the liquidity business have, and that is a huge mistake. Just to point out an analogy, is like riding a horse blind and without hands, you will never know what\u00b4s next in the horse\u00b4s path! Sounds crazy\u2026 but it\u00b4s completely true.<\/p>
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Business owners should be cash flow driven. <\/strong>Checking and controlling the liquidity it\u00b4s the key to manage the operations correctly. Please review these scenarios that support my thesis:\u00a0<\/p>
Profit is positive, but the receivable turnover is superior to 120 days. That means on average a customer takes almost 4 months to pay. The lack of cash will force the company to increase their liabilities or run off chances to pull out a credit.<\/li>
Profit is negative, but the forecast suggests that in 6 months the business will be in break-even. It\u00b4s important to analysis if there\u00b4s a way to cover the operation within this period.<\/li><\/ol>
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\u201cWe were always focused on our profit and loss statement. But cash flow was not a regularly discussed topic. It was as if we were driving along, watching only the speedometer, when in fact we were running out of gas\u201d- Michael Dell<\/em><\/strong><\/p>
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What is OPEX? One of the cash flow components<\/strong><\/p>
The operational expenditures (expenses) are all the business needs to run correctly.\u00a0<\/p>
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The OPEX might and should be and input for the cash flow, so once your domain and control the OPEX the cash flow will be easy to forecast and analyze.\u00a0<\/p>
Lastly, here are some interesting tips about cash flow:<\/p>
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CF is considered the key to corporate finances.<\/li>
Life should be easier if you forecast the cash flow behavior (at least for the next 2 -3 months).<\/li>
PLEASE always analyze worst case scenarios with your CF, to protect your business operations.<\/li>
When forecasting the CF, always be conservative\u00a0<\/li><\/ol>
Pay debts earlier.<\/li>
Assume delays on receivables.\u00a0<\/li>
Assume investments will have a significant lower return than expected.<\/li><\/ol>
Always ask the questions:<\/li><\/ol>
How could I obtain resources for my business? In good times as well as on a crisis.<\/li>
Which are the correct investments for the long term of my business?<\/li>
How do I manage properly my cash in the short term, avoiding problems with obligations?<\/li><\/ol>
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\u201cMaking more money will not solve your problems if cash flow management is your problem.\u201d \u2013 Robert Kiyosaki<\/em><\/strong><\/p>
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For your business, please DO NOT<\/strong>:<\/p>
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Be positive predicting your incomes, what if the expected income enters a month later? How you will be able to meet the operations requirements?<\/li>
Underestimate the expenses, specially the OPEX. It\u00b4s important to measure on a weekly basis the costs and execute a proper forecast for every single expense line.<\/li>
Increase liabilities\/assets ratio in good times, what if there\u00b4s a crisis and you require financing?<\/li>
Forget to evaluate and maintain your possible financing streams, the key is to always have the \u201chammer\u201d to break the in case of emergency window.\u00a0<\/li><\/ol>
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