Oana Labes, MBA, CPA on LinkedIn: 10 Strategic Cash Flow Mistakes and How to Fix Them. ------- 💎If you… | 37 comments (2024)

Well articulated. Gaining optimal working capital can be a game changer. Adopting strategies such as accelerated accounts receivable collection, negotiating favorable supplier payment terms as well as establishing best inventory management techniques ensures good financial health.

Well presented

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A quick guide to improving Cash flow. Ignoring the potential of using automation tools can prove to be costly for enterprises. Learn about the most advanced tool if you want to minimize Cash Flow mistakes.#cashflowmanagement #cashflowoptimization #cashflow

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CASHFLOW mistakes and how to fix them.

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Cash Flow management is CRITICAL to running your business.We made so many of these mistakes in our early days. Poor payment terms, A/R lag, and NO cash flow forecast 😕 These really hurt us and caused us to have to enact a RIF. (The hardest thing you will ever do as a business owner) 💔 I've said it before, if you don't have a good dashboard (data) how can you manage where you are going. This is especially important when it comes to your companies financial health. When creating your financial dashboard make sure to include: 1. Revenue2. Expenses AND 3. Cash Flow Leading and lagging indicators will give you piece of mind! What is on your financial dashboard?

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Cash KPIsKey Performance Indicators (KPIs) related to cash are essential for monitoring and managing a company's liquidity, efficiency, and overall financial health. Here are some Cash KPIs that organizations often track:1. Cash Conversion Cycle (CCC): - Formula = Days Sales Outstanding (DSO) + Days Inventory Outstanding (DIO) - Days Payables Outstanding (DPO) - Significance:Measures the time it takes for a company to convert its investments in inventory and accounts receivable into cash.2. Operating Cash Flow Ratio: -Formula = Operating Cash Flow / Revenue - Significance:Indicates the percentage of revenue converted into operating cash flow, reflecting the company's ability to generate cash from its core operations.3. Free Cash Flow (FCF): - Formula = Operating Cash Flow - Capital Expenditures - Significance:Represents the cash generated after covering operating expenses and capital expenditures. Positive FCF is crucial for investments and debt repayment.4. Cash to Current Liabilities Ratio: - Formula = Cash and Cash Equivalents / Current Liabilities - Significance:Measures the company's ability to cover its short-term obligations with available cash.5. Quick Ratio (Acid-Test Ratio): - Formula = (Cash + Marketable Securities + Receivables) / Current Liabilities - Significance:Evaluates the company's ability to meet short-term liabilities using its most liquid assets.6. Cash Days: -Formula = Cash / (Operating Expenses / Number of Days) - Significance:Measures the number of days a company can cover its operating expenses using its available cash.7. Cash as a Percentage of Revenue: - Formula = (Cash / Revenue) * 100 - Significance:Illustrates the percentage of revenue held in cash, indicating the company's liquidity position.8. Cash Flow to Debt Ratio: - Formula = Operating Cash Flow / Total Debt - Significance:Assesses the ability to generate cash to cover outstanding debt obligations.9. Capital Expenditure (CapEx) to Operating Cash Flow Ratio: - Formula = Capital Expenditures / Operating Cash Flow - Significance:Indicates the proportion of operating cash flow used for capital expenditures, providing insights into the company's investment strategy.10. Cash Burn Rate: - Formula = (Beginning Cash Balance - Ending Cash Balance) / Number of Months - Significance:Measures how quickly a company is using up its available cash, often used for startups or companies in a growth phase.Monitoring these Cash KPIs helps management and investors assess a company's liquidity, financial sustainability, and ability to weather economic fluctuations. The specific KPIs chosen may vary based on the industry, company size, and financial objectives.

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cash flow need more and more kpi to control watch this 👇

Cash flowis the lifeblood of a business, essential not only to keeping the lights on, but also to investing in growth and expansion.Having a solid understanding of cash flow and how to manage it iscrucialto a business’s success

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📊💵Cash Flow Management TipsIn today's fast-paced business world, we can re-affirm the popular maxim; "Cash is King" and which means understanding and managing your cash flow effectively is crucial for sustainable growth and financial stability. Here are some key lessons that can help you navigate the complexities of cash flow management:💵Forecasting is Your North Star: Cash flow projections are like a roadmap for your business. Regularly forecast your cash inflows and outflows to anticipate potential pitfalls and plan for growth opportunities. It's your early warning system for financial challenges.💵Debt Management: Be strategic with debt. While some debt can be beneficial for growth, too much can become a burden. Review your debt structure regularly and consider refinancing if it makes financial sense.💵Negotiate Vendor Terms: Negotiate favorable terms with your suppliers. Extended payment terms or early payment discounts can improve your cash flow.💵Cut Unnecessary Expenses: Identify and trim unnecessary expenses ruthlessly. It's often the small, recurring costs that add up and strain your cash flow. Reevaluate your expenditures regularly to ensure you're operating lean.💵Customer Relationships Matter: Build strong relationships with your customers to ensure timely payments. Consider offering incentives for early payments and establishing clear payment terms.💵Diversify Your Income Streams: Overreliance on a single source of income can be risky. Explore opportunities to diversify your revenue streams, which can help stabilize your cash flow during economic fluctuations.💵Manage Inventory Efficiently: Inventory ties up cash, so optimize your inventory management. Avoid overstocking and stockouts by using data-driven inventory control methods.💵Emergency Fund is Essential: Just like personal finance, having an emergency fund for your business is crucial. This buffer can help you weather unexpected financial storms without jeopardizing your operations.Remember, mastering cash flow management is a journey, not a destination. It requires diligence, adaptability, and a willingness to learn from both successes and setbacks. #CashFlowManagement #FinancialSuccess #BusinessTips #LinkedInLearning #finance #cashflow

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1. Is our company generating positive cash flow from operations?⚫ Metric: Operating Cash Flow (OCF)⚫ Formula: Net Income + Non-cash Expenses (e.g., depreciation, amortization) + Changes in Working Capital2. What is our company's ability to meet its short-term obligations using its operating cash flow?⚫ Metric: Operating Cash Flow to Current Liabilities Ratio⚫ Formula: Operating Cash Flow / Current Liabilities3. How effectively is our company using its assets to generate cash flow?⚫ Metric: Cash Flow Return on Assets (CFROA)⚫ Formula: Operating Cash Flow / Total Assets4. How much of our company's net income is being converted into cash flow from operations?⚫ Metric: Cash Flow to Net Income Ratio⚫ Formula: Operating Cash Flow / Net Income5. Is our company able to cover its capital expenditures with the cash generated from its operations?⚫ Metric: Free Cash Flow (FCF)⚫ Formula: Operating Cash Flow - Capital Expenditures6. How much cash flow is available to our company's investors (both debt and equity)?⚫ Metric: Cash Flow to Investors⚫ Formula: Free Cash Flow - Debt Payments7. How effectively is our company managing its cash conversion cycle?⚫ Metric: Cash Conversion Cycle (CCC)⚫ Formula: Days Sales Outstanding (DSO) + Days Inventory Outstanding (DIO) - Days Payable Outstanding (DPO)8. How leveraged is our company, and can it comfortably meet its debt obligations?⚫ Metric: Cash Debt Service Coverage Ratio (CDSCR)⚫ Formula: Operating Cash Flow / Total Debt Service (Principal + Interest)9. Is our company generating a sufficient return on invested capital?⚫ Metric: Cash Flow Return on Investment (CFROI)⚫ Formula: Free Cash Flow / Invested Capital10. How efficiently is our company generating cash flow for its shareholders?⚫ Metric: Cash Flow per Share (CFPS)⚫ Formula: (Operating Cash Flow - Preferred Dividends) / Weighted Average Number of Common Shares Outstanding

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