This video builds on the recent Profit Ladder video. You need to start with solid profits, but it is also important to understand the 3 key components of operating cashflow. After all profits are an excellent start, but at the end of the day, CASH IS KING.
Here are the 3 components that you need to understand – together they make up what is commonly called “Working Capital”.
These are people that owe you money, i.e. your customers. It is important to have good, solid processes to:
These are the people that we owe money to, i.e. your suppliers. You need to set up accounts with your suppliers and have good trading terms in place. And then have a process where you pay when you need to to meet these trading terms – don’t pay earlier than you need to but also don’t string out your suppliers. You need to maintain good relationships in case you need to ask a favour at some stage.
You need a good system in place to ensure that you order the right amount of stock on a frequent basis and don’t hold an excessive amount of stock. Stock on the shelves ties up cash that you could use in better ways. You also need a good process to regularly review old or slow-moving stock and strategies to move this stock.
In addition to Working Capital and Operating Cashflow items, you also need to be careful where you spend your money – for example on items like equipment, motor vehicles, machinery plus your general operating expenses.
Keep a close eye on all of these areas and you’ll have strong cashflow to continue to build your business or reward yourself and your team.
By Anil Puri