From Zero to Zen by Liz Lajoie

Author:Liz Lajoie [Liz Lajoie]
Language: eng
Format: epub
Publisher: Morgan James Publishing
Published: 2018-03-18T04:00:00+00:00

Getting Your Cash Flow On

Okay, we’ve talked about getting you paid quickly and that’s a major part of your cash flow. Let’s dive in a little further and learn why it’s important. You hear people talking a lot about cash flow, but what does it really mean?

Cash flow is simply a way of tracking the money coming in and moving out of your business. In other words, if your cash is increasing, you have positive cash flow. If you have “decreasing liquid assets” (i.e. less cash), you have negative cash flow. It’s calculated by taking the amount of money you have at the end of one period and adding in your income and expense transactions that have cleared your bank accounts. If you received more payments than you paid out in expenses in a particular month – thereby increasing the amount of money in your bank account – you have a positive cash flow. It only looks at the money actually in your bank account. In the beginning, most of us manage our finances by looking only at cash flow, so hopefully this already makes sense to you.

Your cash flow cycle has a progression. I’m going to use our second payment cycle above as an example. When you agree to do work with your client, you’re in a neutral cash flow state – no money has changed hands yet. You send a PayPal invoice, which is still neutral cash flow. Then your client pays the invoice, and you’ve got positive cash flow when the money hits your account. But don’t forget, you still need to do the work, which often includes reimbursable expenses and perhaps paying yourself, so that’s a negative cash flow stage in the cycle. The cycle starts all over again with the next contract (or an additional work authorization).

Cash flow isn’t just about getting money in the door, it’s also about how you spend it once it’s there. That means keeping an eye on your expenses and managing your bills to your best advantage. It could include reducing your spending or scheduling your credit card payment due date to the time of the month that’s most advantageous for you. The bottom line regarding cash flow is this: Your goal is to take in more money than you’re spending, so the strength of your business is building.

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