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Determining your business's comfortable core capital target involves considering various factors, and the process may vary depending on the industry, business model, and specific circumstances. Here are some general steps to help you find your business's core capital target: 1. Assess Operational Needs: - Evaluate your regular operating expenses, including rent, utilities, salaries, and other essential costs. - Consider the cyclical nature of your business and any seasonal variations in cash flow. 2. Analyze Debt Obligations: - Take into account any outstanding debts, loans, or other financial obligations. 3. Factor in Contingencies: Determine an appropriate contingency reserve to cover unforeseen events. 4. Consider Growth Plans: - If your business is planning to expand, factor in the additional capital requirements for growth initiatives. - Assess the potential impact on working capital and other financial needs associated with expansion. 5. Calculate Working Capital: - Determine the working capital requirements to cover day-to-day operations. Working capital is the difference between current assets and current liabilities. - Ensure that your core capital target includes an adequate working capital cushion. 6. Regularly Review and Adjust: - Periodically reassess and adjust your core capital target as your business evolves. It's important to note that there is no one-size-fits-all approach, and the determination of a comfortable core capital target is subjective and dependent on various factors unique to each business. Regular financial planning and monitoring will help ensure that your business maintains an appropriate level of core capital to support its ongoing stability and growth.

What Are The Key Constraints Present In My Business? Why is this question important? Business is influenced by many factors and is therefore prone to change. The changes can include expansion, contraction, and obsolescence, among others. Nowadays, change can occur very rapidly, with business conditions potentially shifting by 20 to 30% in a short time, such as a quarter. Failure to adapt quickly can lead to the demise of a business, so it's important to be aware of the constraints that exist in the business environment. For example, one such constraint is the fixed payment obligation tied to a specific loan. Being aware of these constraints also allows for the development of contingency plans for various scenarios. One might wonder how often such plans should be reviewed. Depending on the industry, a review frequency of weekly to once a quarter may be sufficient. It's important to clearly identify the constraints, such as "Employees," "Technical Skills," and "Throughput Capacity," among others.

How much should you set as your business' core capital target? The term "core capital target" typically refers to the amount of capital that a business aims to maintain as a foundation for its financial stability and operations. Core capital represents the essential capital required to cover the business' ongoing operational needs, withstand economic downturns, and support growth. It provides a buffer against unexpected expenses and financial shocks. What is a comfortable value for this target? Some business have less Account Receivables than Account Payables. The value is smaller, such as 2 months of working capital without drawing on their credit lines. Some have higher Payables, then they need to prepare more in their core capital. Do you know your business' core capital target?

Maintaining a strong cash reserve is crucial for any business, providing a buffer that can help navigate through unexpected challenges or capitalize on new opportunities. Here are five ways to maintain a strong cash reserve: 1️⃣ 𝐏𝐫𝐢𝐨𝐫𝐢𝐭𝐢𝐳𝐞 𝐂𝐚𝐬𝐡 𝐅𝐥𝐨𝐰 𝐌𝐚𝐧𝐚𝐠𝐞𝐦𝐞𝐧𝐭: Regularly monitor your cash flow to understand where your money is coming from and going to. Use cash flow forecasts to anticipate future financial positions and adjust your operations accordingly. This helps in identifying areas where you can reduce expenses or increase income to boost your cash reserves. 2️⃣ 𝐂𝐮𝐭 𝐔𝐧𝐧𝐞𝐜𝐞𝐬𝐬𝐚𝐫𝐲 𝐂𝐨𝐬𝐭𝐬: Review your business expenses regularly and identify areas where you can cut back without compromising the quality of your products or services. This could include renegotiating contracts with suppliers, reducing overhead costs, or finding more cost-effective ways to operate. 3️⃣ 𝐈𝐦𝐩𝐫𝐨𝐯𝐞 𝐑𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞𝐬: Speed up the cash conversion cycle by encouraging faster payment from customers. This can be achieved through incentives for early payment, penalties for late payment, or simply by streamlining your invoicing process to ensure that invoices are sent out promptly and are easy for clients to pay. 4️⃣ 𝐄𝐬𝐭𝐚𝐛𝐥𝐢𝐬𝐡 𝐚 𝐂𝐨𝐧𝐭𝐢𝐧𝐠𝐞𝐧𝐜𝐲 𝐏𝐥𝐚𝐧: Set aside a specific portion of your revenue into a dedicated cash reserve account. Treat this account as a non-operational fund that is only to be used in emergencies or for strategic investments. Deciding on a fixed percentage of monthly revenue to contribute towards this fund can help in growing your cash reserves steadily over time. 5️⃣ 𝐌𝐚𝐱𝐢𝐦𝐢𝐳𝐞 𝐘𝐨𝐮𝐫 𝐑𝐞𝐯𝐞𝐧𝐮𝐞 𝐒𝐭𝐫𝐞𝐚𝐦𝐬: Diversify your income sources to reduce reliance on a single revenue stream. This can involve expanding your product line, exploring new markets, or adopting different sales strategies. By increasing and diversifying your revenue, you can more effectively build and maintain your cash reserves. Implementing these strategies can help ensure that your business maintains a healthy cash reserve, positioning it to weather financial storms and take advantage of growth opportunities when they arise.

Why I never ignore the Statement of Cash Flows because it’s the lifeline of your business. In the construction industry, understanding your Statement of Cash Flows is crucial. It’s not just another financial document; it’s the heartbeat of your business’s financial health. Yet, many overlook its importance, focusing solely on profit and loss statements. A lot of people say their P&L gives them all the information they need. But relying solely on that is like trying to navigate with half a map. The Statement of Cash Flows provides a clear picture of how cash moves in and out of your business, showing you the real-time liquidity you have to work with in your business. This statement breaks down cash flow into three main categories: operating activities, investing activities, and financing activities. It tells you how well your business is generating cash from its operations, how much is being spent on investments, and how cash is being managed in terms of debt and equity. For example, a construction company I advised gained crucial insights into their cash flow gaps and adjusted their payment terms, which improved their cash position significantly within a few months. The proof is in the clarity and control you gain. Companies that understand and regularly review their Statement of Cash Flows can make informed decisions about managing their cash, investing in new projects, and planning for future growth. To get started, take the time to review your Statement of Cash Flows regularly. Understand where your cash is coming from and where it’s going. This isn’t just about tracking expenses; it’s about gaining a strategic advantage in managing your business. Don’t underestimate the power of your cash flow statement. Cash Flow is crucial to any business. DM CASH FLOW to determine if we are a good fit to work together to manage your cash instead of your cash flow managing your businesses opportunities.

Financial KPIs empower small business owners to enhance profitability, manage expenses, and ensure financial stability. These are the most important metrics that business owners need to keep in mind: Accounts Receivable Turnover: Measures how efficiently a business collects payments from customers. Return on Investment (ROI): Assesses the profitability of investments, aiding decision-making. Inventory Turnover Ratio: Measures the efficiency of inventory management by assessing how quickly inventory is sold. Working Capital Ratio: Evaluates a business's ability to cover short-term liabilities with its current assets. Debt-to-Equity Ratio: Compares a business's debt to its equity, influencing financial leverage decisions. Gross Profit Margin: Reveals the proportion of revenue retained after deducting direct costs, guiding pricing strategies. Net Profit Margin: Calculates the percentage of profit relative to total revenue, indicating overall business profitability. Want to explore KPIs further? Book a call with us to learn how can we help your business

SHOULD OUR PRIMARY EMPHASIS BE ON CASH FLOW OR PROFIT? In business, it's crucial to focus on both cash flow and profit, as they serve different but complementary purposes. CASH FLOW · Ensures you have enough liquidity to cover day-to-day operations and financial obligations. · Vital for meeting short-term expenses, such as payroll, bills, and debt payments. · Reflects the actual cash coming in and going out of your business, offering a real-time view of your financial health. PROFIT (NET INCOME) · Measures the overall financial performance of your business. · Indicates whether your revenues exceed your expenses over a specific period. · Important for long-term sustainability and attracting investors or lenders.   Balancing both cash flow and profit is essential for financial stability and growth. While profit is a key indicator of your business's success, maintaining healthy cash flow ensures you can cover operational costs and seize opportunities as they arise.

Cash flow is different to profit!

Cash flow is the movement of money into and out of a business, reflecting its financial health and liquidity. Here's a quick overview: Types of Cash Flows 1. Operating Cash Flow (OCF) -Definition: Cash generated from core business operations. -Example: Sales receipts, payments to suppliers, and wages. -Importance: Indicates the ability to sustain operations and generate profit. 2. Investing Cash Flow (ICF): -Definition: Cash used for or generated by investment activities. -Example: Purchase or sale of assets like equipment or real estate. -Importance: Reflects investment in future growth and asset management. 3.Financing Cash Flow (FCF): - Definition: Cash flows related to funding the business. - Example: Issuing or repaying debt, dividends paid to shareholders. -Importance: Shows how the business is financed and its capital structure. Cash Flow Statement -Purpose: Summarizes a company's cash flows over a period. -Structure: 1.Operating Activities: Shows cash from regular business operations. 2.Investing Activities: Lists cash used for investment and acquisitions. 3.Financing Activities: Includes cash from issuing debt or equity and paying dividends. Importance of Cash Flow -Liquidity: Ensures the business can meet short-term obligations. -Solvency: Aids in assessing long-term financial stability. -Investment Decisions: Helps evaluate the viability of investing in or lending to the business. -Performance Metrics: Provides insights into profitability and financial health beyond net income. Understanding cash flow is crucial for managing business operations, making investment decisions, and planning for future growth.

When managing a small business, understanding cash flow is crucial. Cash flow refers to the actual money moving in and out of your business. Proper cash flow management ensures that you have enough funds to cover day-to-day operations, invest in growth opportunities, and weather financial challenges. Tune in on Wednesday, August 14th, at 12 pm to learn how to stay on top of your business cash flow, avoid shortfalls, and make informed decisions. Remember, positive cash flow is key to long-term success.