Cash Flow Fundamentals Why Cash is King & How to Manage It.pptx
                     Cash Flow 
Fundamental
Ws:hy Cash is 
King & How 
to Manage It
Introducti
on
In the world of business, cash is king. But many people struggle 
to manage their business cash flow effectively, resulting in poor 
financial performance and even business failure.
Discover why cash reserves are crucial for businesses and tips 
to improve cash flow & understanding your working capital.
It’s easy to get lost in the allure of huge revenues and profits. 
But, underneath these headline-grabbing numbers lies a 
fundamental truth every seasoned businessperson knows: 
Cash is King.
It’s not just a catchy phrase; it’s the underpinning of successful 
business management. While revenues and profits indicate a 
company’s potential or performance on paper, cash represents 
its actual ability to cover expenses, pay employees, invest in 
growth, and withstand downturns.
Effective cash management doesn’t just act as a shield; it’s also a sword. It enables businesses to capitalise on opportunities 
that others, with business cash flow issues, might overlook. Investors who evaluate a business often bypass the “vanity 
metrics” such as revenue size. They focus instead on the cash flow forecast and actual cash flows of the enterprise, knowing 
that positive cash flow often dictates a company’s true health and potential.
82% of business failures in Australia are attributed to poor and irregular cash flow.
Moreover, a startling 44% of firms lean on business credit cards and other finance options for day-to-day operations. These 
numbers underscore a critical need for businesses, especially small and medium-sized enterprises, to prioritize their cash 
flow forecast and tackle cash flow issues proactively.
“Revenue is vanity, profit is 
sanity, and cash is king.” 
While robust revenue figures might earn 
admiration, and profit indicates sound business 
operations, neither guarantees survival. It’s the 
tangible cash in the bank that settles bills, meets 
emergencies, and sows seeds for future growth. 
It’s cash that truly reigns supreme in the realm of 
bWusihneesrse.  Did My Profits Go?
At the end of the year, many business owners are left 
wondering, “Where did my profits go?” despite seeing a 
positive net income on their profit and loss statement. 
The answer lies in understanding the importance of 
working capital and its influence on cash inflows and 
outflows. Only when you understand this, can you craft 
an effective cash flow plan.
This video takes a look at the following:
• Even with a solid gross profit, subtle changes in costs 
or working capital metrics can shift your cash flow.
• It’s not just about revenue and operating profit. 
Consider the impact of accounts receivable, inventory 
days, and accounts payable on your bottom line.
• Balance sheets tell a deeper story: sometimes, 
increasing profitability or securing a good deal might 
result in less immediate cash.
Understanding 
Your Working 
CSimaply pput, yiout’rea usinlg ?your cash to purchase stock, pay 
suppliers, sell the stock, and get paid by debtors. So, your 
cash goes from you to your suppliers, and then you get it 
back from your customers. 
Pretty straightforward right? BUT the length and what’s 
involved in that cycle can have an enormous impact on how 
successful your business is. 
Let’s look at each of those metrics, how you calculate them, 
and then some strategies to improve them.
A measure of the average number of days it takes a company 
to collect payment after a sale has been made. It’s a key 
metric to gauge the efficiency of your accounts receivable 
department.
A higher number means that it’s taking longer for the 
company to collect money from its customers. This could be 
due to lax credit policies or issues with the quality of 
goods/services. A higher debtor days might strain a 
company’s cash flows.
Formula: (Total Debtors Balance/ 
Total Annual Revenue) x 365
A company called Massive Dynamic has $137,000 sitting in 
debtors, and a turnover of $1,000,000 per year.  
Debtor Days = (137,000/1,000,000) x 365 = 50
Following the above formula, they have 50 debtor days.
Indicates how long a company takes on average to pay its 
suppliers. 
A higher number means that the company is taking longer to pay 
its suppliers, which could be beneficial as it means they are 
keeping cash in the business for longer. However, if it’s too high, 
it may strain relationships with suppliers or indicate cash flow 
problems.
Formula: (Creditors Balance/ Annual COGS) x 365
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