Cash Flow: An Entrepreneur’s View
What is cash flow? Merriam-Webster defines cash flow as “Cash flow is simply the cash expected to be generated by an investment, asset or business.” This is a good technical definition, but it does nothing to help you understand how it works. If you don’t understand how it happens how do you manager it?
To me cash flow is an operational concept. So, I designed a simple model to help entrepreneurs understand it. It’s called Tuning Your Revenue Engine. The diagram below visually describes the process:
The Revenue Engine is comprised of four major business functions:
- Marketing whose responsibility is to generate leads.
- Sales which takes those leads and turns them into contracts to exchange money for products or services.
- Delivery where the contracts are fulfilled so that…
- Collections can bill and collect payment for the product or service.
In a nutshell this is your cash flow cycle! For most business people this is much easier to understand than, “the movement of money in and out of a business” or “cash flow is simply the cash expected to be generated by an investment, asset or business.” Probably, because it’s what you do all day, every day as a business owner.
Now, take a step back and think about your revenue engine. What happens when you slow it down? How about if it slows down too much? What if you could speed up your Revenue Engine? This is what Tuning Your Revenue Engine is all about, taking the obstacles and challenges out your way so you can speed up your cash flow cycle. You can get a better idea of how you do this by watching our short concept video titled Tuning Your Revenue Engine.
I am interested in knowing if viewing your cash flow cycle this way is helpful for you so please comment. If you want to see where you need to Tune Your Revenue Engine in your business, take a look at our Revenue Engine Performance Checkup.