Ep. 39: How to Handle Your Cash Flow

Manage your cash flow.

Have you been struggling with securing funding? The issue might be your cash flow. Ambro Blackwell, a best-selling author and VP and senior business banking relationship manager at JP Morgan Chase, explains what cash flow is and how to strategically plan it in a way that sets you up for success.

(04:14)  - How to use your cash flow to figure out and mitigate what problems you might run into.

(08:18) - Andrea goes over why cash flow is vital for securing funding, the key sections that are typically included in a cash flow statement, and what they represent.

Episode Transcript

[00:00:04] Ambro: Cashflow is paramount. It's a big part of what I focus on and do is help people with their cashflow because without cashflow, it's going to be hard to get financing to get funding.

[00:00:16] Andrea: So before you even start thinking about finding external funding, you need to have your cash flow in order. This comes up a lot in conversations we’ve had with small business owners. Let’s talk about it.

[00:00:28] Host: Hi, This is Small Business, a podcast by Amazon. I’m your host, Andrea Marquez. This is one of our Minisodes, which are shorter episodes packed with helpful information for those of you who want a quicker binge. On this episode we'll be talking cash flow and how to secure funding for your business with Ambro Blackwell, a best-selling author and VP and senior business banking relationship manager at JP Morgan Chase. To learn more about him visit our website at thisissmallbusinesspodcast.com. Also, remember [00:01:00] that if you want to hear your story on This is Small Business, we have a voicemail line where you can ask questions or share your entrepreneurial story. We want to hear from you! Find the link to the voicemail line in the episode description.

[00:01:14] Andrea: Ambro, what are your thoughts on strategic planning for sustaining a healthy flow of cash for a small business?

[00:01:20] Ambro: It's imperative. It literally is. And it's hard to imagine. Not being able to be successful and stay in business if you're not strategically planning. Because you have to continue to have cash flow to keep things going, you know, again, that sometimes is part of the business planning. But you should be forecasting your business. You should know where your business is heading. Whether you're on an accrual basis, which is a way of recognizing income. If you have receivables out. You know, you might want to know what's the likelihood that you're going to be able to collect on those receivables. So that way you can now forecast and know that, you know, payroll's coming up, [00:02:00] maybe tax payments are coming up, you know, things of that nature. So you want to be able to anticipate, understand how your cash flow is looking. And yes, there's always going to be some days, some months where businesses, you know, may not be as steady as the month before. But you want to be able to, as much as possible, make sure that you're planning for that. And the only way you can do that to make sure that you're optimizing your cash is to do it strategically.

[00:02:25] Andrea: If I'm starting and I'm doing this strategic planning, is there some type of formula that I should follow?

[00:02:30] Ambro: It's interesting because there's a lot of benchmarks, you know, out there and this is something whether you're starting a business or you've been in business. This is where I highly, highly recommend having a good team, having a good banker, having a good accountant, CPA, because there's resources around that will be able to kind of help explain and share some of those things. And so by benchmarking, what that basically does is it allows you to take a look at let's say you're a dentist. Well, you can look at the dentist and survey and see [00:03:00] from top to bottom, from the top sales, which is your sales revenue, which is what people have paid you, or people have paid others, how much of that trickled down, all the way down to net income, so you can see how much was going out to what, how much was going to where, and there's a lot of research that's out there that will help guide you with those things. That's where proper planning, strategic planning, could be very vital and very helpful at the same time.

Typically, what I like to think of is a good, healthy, growth is about 10%, maybe as high as 15%. But once you start kind of going past that, then you start noticing, at least from my perspective, I start noticing that there's probably a change of focus in what the business is focused on. You start getting over 20%, now you're starting to experience rapid growth. If you're over 40, 45% or so, you're probably in hyper growth. And when you start looking at from my experience and from my perspective, the business owner is probably less focused on profitable and it's very hard to be profitable [00:04:00] because you have so much that's growing. And again, you have expenses that are going to be incurred.

So a portion of every earned dollar has an expense attached to it. And it's very hard to be able to systematically and predictably plan for that when it's happening so fast.

[00:04:15] Andrea: How does a small business know they might be running into any problems soon based on their cashflow and what do you think they can do to mitigate it?

[00:04:25] Ambro: Well, the first thing is, you can and should plan for Murphy's Law. What can go wrong will go wrong. Things will happen, you know, especially if you have employees. You know, one of the things I always try to, you know, tell people over the last, you know, near 20 years is think about working capital before you need to go get working capital. And one of the best products out there are working capital lines of credit, uh, business lines of credit, not, not so much home equity lines because that's for personal and Elox are for personal and for business. It's business lines of credits. [00:05:00] Now that will help you to, you know, even out, you know, some of the dips and the spikes when it comes to cash flow. Because there are going to be things that come up. But you still have, you know, employees, of course, you still are responsible for making sure they get paid.

So those are different things that you need to be taking into consideration. Again, this is where I talked about, as we said earlier about strategically planning, knowing that these things are coming up. Tax payments aren't, always, you know, every week. So you know that these things are coming up. You should be forecasting. This is where talking to your team. Your accountant, you know, your attorney, your banker, they can help you with some of those things, making sure that you, you know, you streamline your cash flow. It's your relationships more than anything else. You know, you have to make sure that I would say you have to focus on building the right team. You know, making sure that you do your best to afford the best team, best talent. That's everything from your internal to your external because it's going to pay off dividends for these things that we've just been talking about that come up [00:06:00] or may have not been able to be foreseen. You wear so many hats as an entrepreneur and a small business owner. You need the best that you can afford to buy or afford that you can pay.

[00:06:10] Andrea: Could you explain what a cash flow statement is?

[00:06:13] Ambro: That's another tool that a lot of people overlook. The difference between what it does is it helps you, helps me, helps us understand exactly how much of your cash is being invested, how much of it is being financed to help run the business. And it helps you separate and understand how much of your cash is actually working for your business in terms of being operational.

[00:06:33] Andrea: What's the difference between financing versus investing cash flow?

[00:06:38] Ambro: If you took out a loan, for example, you've got other things that, you know, it's a capital injection. A lot of people think of cash flow, and they're like, I need cash, I need cash, I need to get a loan. Well, what you might need is other things in component. You may need to trim the fat. You may need to get better terms on, you may need to reduce your cost of goods sold. [00:07:00] You may need to be able to get better pricing. So, again, funding, lending helps you to go ahead and actually get more out of your operations. But it's going to help you to actually see and break down between the three different ones. Another one is obviously the investments as well.

[00:07:15] Andrea: Is cashflow the same as profit?

[00:07:18] Ambro: No. That's one of the issues or potential challenges when you're growing a business because at a certain point when you start looking at the numbers in terms of how much is each dollar assigned to an expense, in most cases, well, as you start growing, you may bring in more revenue, but if your costs now get out of line, It may start going in the opposite direction, or if it's taking you too long, you may get more customers, but what if you get three to four customers? And I'm just using three to four, obviously, it's just a numeric amount, but those three or four might be big customers. Those might be customers that may not be able to help you. Those may be customers that have went out of business. [00:08:00] So now you've still had those costs that you incurred, but you weren't able to see the profit off of it.

[00:08:06] Andrea: That was Ambro Blackwell, a best-selling author and VP and senior business banking relationship manager at JP Morgan Chase. As always, here are some key takeaways on managing cash flow for your business.

  • One. A cash flow statement provides you with a detailed picture of what happens to your businesses’ cash during a certain period of time. It demonstrates how your business is able to operate in the short and long term. It is typically broken down into three sections: operating activities which is cash flow generated once the company delivers on good or services, investing activities which is cash flow from purchasing or selling assets using free cash, and financing activities which is cash flow from debt and equity financing.
  • Two. Cash flow is not the same as profit. Cash flow shows you how much money moves in and out of your business while profit show you how much money is left over after you’ve paid all your expenses.
  • [00:09:00] Three. Cash flow is super important. Without it, you're going to find it a lot more difficult to secure funding. So make sure you’re strategically planning ahead of time and two things to keep in mind when doing this is to be articulate and build the right team. When you're trying to secure funding, you need to be able to communicate clearly what you need and your plans for when that need is met, and having the right team will help you understand what to expect and cover your bases to be able to keep the business going.

That's it for this episode of This is Small Business Minisodes, brought to you by Amazon. If you liked what you heard, make sure to subscribe and tell your friends about us by sending them a link to this episode. And we would love to know what you think, so please please please leave us a review on Apple Podcasts. It's easier to do it through your phone. Or send us an email at thisissmallbusiness@amazon.com with your thoughts.

Until next time – This is Small Business, I'm your host Andrea Marquez -- Hasta luego -- and thanks for listening! [00:10:10]



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