“The most important word in the world of money is cash flow.” -Robert Kiyosaki
Quick: What was your cash flow last month? How about for the year to date?
I’ve worked with numerous companies over my career and almost no one has any idea what their cash flow looks like. Most folks look at the bank account and if it looks OK they figure cash flow must be OK.
This is wrong and it makes me sad.
I want you to avoid the cash flow problems that have befallen so many breweries. So, I’ve put together The Ultimate Cash Flow Guide for Craft Breweries.
To give you a summary of what to expect in the guide, below is a recap of the key points:
- Know The 10 laws of business.
- Law #1: Don’t run out of cash. Law #10: Don’t run out of cash. All the rules in-between don’t mean crap.
- Understand the difference between profit and cash flow.
- Most importantly, understand that there is a difference and it can be very large. Profit is good, but is only one component of your cash flow.
- Transform your company by leveraging the Five Drivers of Cash Flow:
- Accounts Receivable (money in). It’s where your sales dollars live until you collect.
- Accounts Payable (money out). It’s where your purchases live until you pay the bills.
- Inventory. That’s cash on the shelves, not just beer, so treat it as such.
- Capital Expenditures. Trucks, equipment, and brewery expansions, oh my.
- Operating Performance (profit). The bottom line. Your P&L only tells part of the cash flow story.
- Note that 4 of 5 cash flow drivers above live on your balance sheet (not P&L). This is a helpful reminder to give your balance sheet some love. Have your finance people provide this information to you on a regular basis – your cash flow depends on it.
- Implement this simple system to manage your cash flow drivers:
- Know the score. Use a metric to track how well you are doing with each cash flow driver. For example, the number of days sales in inventory.
- Educate your team on what the metric is, and how it’s calculated. Show them how they can make a difference and improve the result.
- Set a goal to improve the score, the metric. Use industry benchmarks, or benchmark against past company performance. Communicate the goal to those who can influence the outcome.
- Monitor the score, track progress towards the goal, and provide regular updates to your team.
- Celebrate the win. Free beer works well here.
- Ask this question of yourself regularly: “What did I do today to improve cash flow?” Examples: visit a key customer and say thank you, review product margins to improve operating results, cut an un-necessary expense, provide financial training and education to your team.
- Hire people who care. This is obvious, right? But we often hire people who have the right experience, background or education. Find and hire people who care, people who are dialed-in to what they are doing. You want someone who is excellent at collecting money? Hire someone who loves to collect money (because most people don’t). You want someone who is great at managing inventory? Hire someone who loves to be with the inventory, to count it, to communicate and sing the praises of it. Hire people who care.
Cash flow is the life blood of your business. Without cash, you are dead in the water.
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Yours in Ultimate Cash Flow.