Strategically Speaking: Cash Flow – Part 1
Greetings, everyone ~ Happy Groundhog Day and Valentine’s Day!
Are you a small business owner who is struggling to increase your profitability in the midst of the current, economic environment? Being forward-thinking, and able to pivot to meet the challenges of today’s environment will be key for success as we move forward in this new year and beyond.
I’m happy to share that I’ll be contributing to this forum quarterly. As a fractional CFO, I help local small business owners build profitable, financially sound companies that support their livelihoods and long-term goals.
A fractional CFO is a part-time financial strategist, providing senior-level financial insight without the price of a full-time executive. This allows owners to access essential support at a fraction of the cost. Since a lean cost structure is vital for growth, I help owners understand their numbers, improve cash flow, and make confident operational decisions.
Throughout my 30-year finance career, I learned that strong financial operations are the backbone of success. I founded CPN & Associates on the belief that thriving isn’t just about working harder or growing revenue—it’s about understanding how decisions impact profitability and cash flow. Helping business owners build strong, sustainable businesses is the work I do today. One of the most important ingredients in achieving that success is positive cash flow.
One of the biggest misconceptions about running a small business is the belief that profit equals cash. It doesn’t, and all business owners need to understand why. So, what is cash flow, really? Simply put, cash flow is the movement of money in (customer payments, loans, owner contributions) and out (payroll, rent, inventory, loan payments, taxes) of your business.
You can see these trends on your profit & loss (P&L) statement, but the distinction many business owners miss is that your P&L shows profitability while your cash flow shows survivability. Your business can show a profit on your financial statement, but you may have little to no cash in the bank. Why is this?
Some reasons could be customers pay late, so you are using company funds to pay expenses before you collect revenue, or you have large upfront purchases (inventory, equipment, software tools) that often require payment in full at one time, rather than paying a smaller amount over time. As a result, you can’t match your spending to your revenue intake, causing a profit and cash flow mismatch.
Understanding why this happens, and managing your business with those reasons in mind, is the first step in getting a handle on this critical cash flow issue. Managing your business’ cash flow is not something to “check on” weekly or monthly. It’s a decision-making tool that you can use to strategically manage your business for maximum profitability.
This is just the tip of the iceberg. My next article will delve into this topic in more detail. Please feel free to write to me with any comments or thoughts you may have. carol.nolan@cpnassociates.com
Here’s to your ongoing success!
