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""There are 8 drivers of cash flow, for the best cash generating outcome all 8 pieces of the cash flow puzzle should be strategically engineered & planned.

They are:

1. Sales Growth
2. Gross Profit
3. Overhead Expenses

4. Accounts Receivable
5. Accounts Payable
6. Inventory

7. Capital Expenditures
8. Taxes and Business Risk Management

1. Every company has a sustainable rate of growth, growing faster will bankrupt you, growing slower leaves potential on the table. Using a racing analogy: If you are running a race from coast to coast without an infinite supply of fuel (cash), then fuel management becomes crucial. Drive too fast and the car runs out of fuel, drive too slow and you lose the race. Know your sustainable rate of Growth.


2. Gross Profit is comparable to the fuel economy that your engine gets. A very fuel efficient car that leaves a lot of fuel in the tank, i.e. has a lot of Gross Profit built into price, contributes well to cash flow from each sale, but the higher prices charged in order to generate more Gross Profit, generally make the car slower, in other words, very high Gross Profits gained by higher prices slow you down in the sales race.

On the other hand, lower pricing speeds you up in the sales race, but leaves you with less Gross Profit to contribute to cash flow from each sale.

A good Gross Profit strategy as relates to cash flow is a matter of planning your race, and setting up the right kind of engine with the right balance of Sales Generating horsepower, and cash flow generating fuel efficiency.

3. If Gross Profit is the engine that drives cash flow efficiency, then your overhead expenses are are all the other the things on your race car that decide its performance besides the engine. Things like the cars weight and aero dynamics etc. The rule of thumb here is always find ways to make your race car lighter and more streamlined, i.e. reduce and streamline management, administrative, and facilities expense etc. every chance you get.

4, 5, and 6. Accounts Receivable, Accounts Payable, and Inventory.

ALWAYS COLLECT FASTER THAN YOU PAY. If you collect cash slower than you receive it, you're creating a cash flow deficit that you have to cover out of pocket, this has a huge impact on your ability to fund growth. The more you grow, the bigger the cash flow gap becomes. You can bankrupt yourself as a result of your own success.

On the other hand, if you collect faster than you pay, you create a cash flow surplus. In this case, Growth increases cash instead of draining cash!

Keep as little inventory on hand as possible.

Collecting slower is like taking fuel out of your race car and putting it into you client's race car...paying faster is like taking fuel out of your car and putting it into your vendor's car...keeping excess inventories is like taking fuel out of your car and putting in a 55 gallon drum, its still your fuel, but isn't helping you in the race.

Be cash flow centric instead of profit centric in you A/R, A/P and INV strategy. In many cases this means giving up some profits to offer fast pay incentives on your receivables, giving up profits from not taking fast pay incentives on your payables, and giving up some profits to not buy in excess bulk on your inventory. None of this sounds good in a profit centric approach, but would you rather finish the year with 10% net profit and 1 million  additional cash in your bank account, or finish the year with 6% net profit and have 3 million of additional cash in your bank account?

You can't spend A/R, A/P or INV, nor profits on paper, you can only spend CASH!

7. Capital Expenditures are the moneys you spend to make your race car faster and more fuel efficient. Buy wisely.

8. Taxes and Risk Management

Having a good Tax and Asset Protection plan in place from a good Tax Specialist is like having a roll cage and safety equipment in your car, and a good pit crew to support you.

Best of Luck
BetterBusinessPractices.org""