The best sign of longevity in business is a Healthy Cash Flow.  If the money is depleted, the business can no longer function.  It doesn’t matter if you have the best product in the market, the most fantastic staff, your business purpose will change mankind….the world’s greatest person could not survive without food, and a business cannot survive without cash (its main nourishment).

Because Money feeds all other elements in business (Team, Tools, Marketing, Purpose, Product), its focus is recommended weekly for most businesses.  You do not need to pay your bills and prepare a deposit weekly, but I recommend analyzing cash flow weekly.  The sooner you can fix a potential problem, the better your cash flow.  For instance, if you realize mid-month that an account has become past due, performing tasks now to retrieve the funds will be much more beneficial than waiting for month-end.

How exactly do you measure it? How do you know if it’s healthy or near death?  First you will want to know your fixed expenses (items that are recurring, you pay them whether sales are up or down; rent, subscriptions, payroll, and utilities).  This number will give you the absolute minimum amount of cash to generate each month without having a negative bank balance.  Ideally you would generate this cash via sales, but you can technically generate cash by taking out a loan.

Next decide what your variable expenses are (items that are not recurring, you have a choice to incur, and they typically increase as sales increase; marketing, inventory, bonuses to the staff).  Decide how much sales will increase by partaking in these optional expenses.  If you spend $3000 in marketing for the year, you would predict sales would then increase above and beyond $3000.  And just how much beyond the $3000 will they increase?  An additional $2000?  Now you have $2000 minus product costs and labor hours (of say $500) for a total of $1500 to apply towards other choice-driven expenses like pay increases, equipment purchases and extra payments towards debt.

If you do not analyze cashflow, you do not know how much money you truly have left over to make informed expense decisions. Instead of making an extra credit card payment, and hoping there are enough funds to cover it, you can know exactly how much to pay and still remain a happy healthy entity.