Knowing what you want to do with the cash surplus your business generates is the beginning of being more disciplined in managing your business cash flow from profits. Those who know what they want to do with their cash are 100% more likely to practice weekly cash management over their cash inflows and outflows. Through a multi-week rolling cash flow forecast, they establish the ability to protect their business from possible cash outflow surprises that often arise from cash inflow setbacks.
Ultimately, the results of your business cash flow management efforts are intended to position you to make one of three cash surplus strategy decisions:
- Convert your surplus cash into new assets to increase sales and profits.
- Use your surplus cash to reduce liabilities to lower your cash outflow pressure.
- Transfer your surplus cash to the owners for personal use.
Note: none of these three cash surplus strategy options exist until your business makes a sale that is delivered and collected at a profit.
The best strategic decision an owner gets to make is their decision over what to do with their cash surplus.
The most exciting decision to make in business is the decision tied to “What am I going to do with my business cash flow surplus?” Below is a business cash flow chart laid out by the core elements of your P&L Statement and your Balance Sheet. This business cash flow model shows what happens to collected cash before you ever get to decide what you will do with the cash surplus generated by your business.
The challenge represented above lies in the combination of different ways to lose money in your business. Money that you work so hard to earn is either made or lost, as reflected by your financial statements. Put another way, every dollar of cash not collected or wasted is a dollar less to invest in your business, yourself, or to pay down your debt.
Consistent use of a cash management tool is the best way to realize your business cash flow objectives.
The best cash flow strategy is only as good as the quality of its strategic execution. You improve the probability of realizing your cash flow strategy by proactively managing the flow of cash through a cash management tool. Accurately planning for cash inflows and cash outflows is necessary to build a cash reserve and, ultimately, a cash surplus, as reflected in your statement of cash flows.
Would you like some help managing cash?
Click the link below to schedule a time to talk with a cash management expert to learn how best to set up a cash management system. Until you do, you will never get the opportunity to decide what you will do with your cash surplus from profits.