I speak at a conference this week on how “Being in Control of Cash is Really, Really Awesome!“. Yeah, I know: I get all the sexy topics! ūüôā

MY PRESENTATION describes¬†cash flow as a complex, shifting¬†web that touches everything in a company. I suspect the first question I’m going to get is, “Yes, yes, but what’s the single most important¬†driver of healthy cash flow?”

Okay, okay. I’ll tell you.


Cash is at the end of a long chain. Let’s¬†walk back up¬†the chain together and¬†discover¬†what¬†really¬†drives cash.

Start With Profit
At it’s simplest, cash comes from profit which is sales¬†minus expenses. These are shown on the income statement so this¬†is a great place to start. Lots of things going on here, though. And whatever we determine is important today will change over time. And the important things¬†differ from business to business. Hmm, not so simple after all.

Outside Forces Affect Profit
Another¬†complication: profitability’s contribution to¬†cash is affected¬†by outside forces. Accounts receivable, accounts payable, and loan principle payments (among other things) all affect cash significantly. Policies around collections, supplier terms and financing are very important.

Leading Indicators Predict Performance
In addition, lots of activity occurs long before things start showing up on the¬†income statement. Things like product design decisions, the marketing effort, and the number of sales calls. A¬†good business manager knows how critical these are. So she tracks them all¬†using¬†leading indicators¬†and she learns how each affects¬†her business’s cash.

Business Model Makes Key Assumptions
Go further up the chain and we find our business model. It was created when the business was very young and it shapes everything we’ve looked at so far.¬†Assumptions about prices, cost of goods, and cost of acquisition are the pillars that support any business. Surely our¬†business model¬†is the most important thing¬†affecting cash, yes?

The End of the Line
Well, maybe not. You see there’s one thing left that underpins the whole shebang. It’s that deep, confident knowledge of WHAT we’re all about and WHO we ultimately work for. This determines HOW we create and deliver our goods and services to the world.

This is business strategy. And your strategy is the foundation upon which your business rests and upon which your cash ultimately depends.

The strength of your cash flow ultimately depends on your business strategy.
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Apple is a great example of this. They deliberately created a strategy that reminds their team to create MAGICAL EXPERIENCES with which to DELIGHT PEOPLE. It tells them to imbue everything they do with END-USER FOCUSED DESIGN and SIMPLICITY.

We all know that lots of companies can create computers and music players and phones and tablets but none¬†do it precisely the WAY that Apple does.¬†Their way ‚Äď their strategy ‚Ästhas made all the difference¬†and¬†has resulted in¬†Apple’s enormous cash balance.

Unfortunately, “business strategy” is not a word that many¬†business owners are comfortable with. It’s a term that seems¬†to apply¬†only to large companies. Not true.

Your company could have ‚Äď should have ‚Äď a strategy, too. A strategy¬†that focuses and aligns all the links in your company’s cash flow chain.

Take this 60-second quiz to learn:


Count 1 point for every statement you agree with.

  • I¬†monitor my¬†income statement every month.
  • Bonus point: I¬†take immediate action when an unusual number appears.
  • I¬†know how accounts receivable and¬†accounts payable¬†affect cash.
  • Bonus point: I¬†have a collection policy in place which is enforced.
  • I¬†have at least three leading indicators (metrics) that I¬†check at least once a month.
  • Bonus point: All¬†metrics¬†have a target goal and a target date.
  • I¬†know WHY our customers love us¬†and WHY we’re¬†distinctly¬†different from our competitors.
  • Bonus point: I communicate this to my team often ‚Äď at least once a week.

How did you do?

7 ‚Äď 8: Outstanding! The links in your cash flow chain are strong and healthy.

5 ‚Äď 6: Well done! You’ve got great¬†fundamentals and are well on your way to outstanding. Keep up the good work!

3 ‚Äď 4: Nice start! Learn a little more about AR, AP and metrics and you’ll soon feel the difference!

2 and under: This is the PERFECT moment to commit to learning about cash flow.
My new book, Customer Dreams, uses a simple story to introduce strategy fundamentals to business owners.

Who is your favorite LOCAL company and why do you love them? You can leave a comment below.