Factors that affect cash flow

“What you are afraid of is never as bad as what you imagine. The fear you let build up in your mind is worse than the situation that actually
exists.” – Dr. Spencer Johnson, Who Moved My Cheese?

Cash Flow is the heartbeat of your operation. Without it, you die. If there is a more fear-inducing truth in business, I do not know of it. The quote above from Dr. Spencer Johnson, the author of “Who Moved My Cheese?”, hits on this very point. It is one of the most insightful books I have read on the mindset of running a business. The whole premise is not to just look at your current situation, but to get a feel for how the future of your business is going to unfold. Looking ahead in your business is an often-overlooked part of running it. When you look a few months down the road, and even a year or several years down the road, everything becomes clearer. I am talking specifically about your cash flow.

Nick Bogacz, founder and president of Caliente Pizza & Draft House in Pittsburgh

Many different factors can affect cash flow, and there are some basics that need to be understood first before delving into advanced methods. Conducting a monthly profit and loss report in a timely manner is a must. Reading it and comparing it to months past is a good way to see where there may be opportunities to tighten your operation. There will always be a lot of talk about what your food cost should be and what percentage your labor cost should be; there could be hours of discussion on both subjects. For the sake of argument, I will tell you what ours is for Caliente. Our cost of goods is 30 percent, and that includes everything from paper products to chemicals, and everything in between. Our labor goal is 25.25 percent, and that includes all staff that work in the store.

Nothing helps cash flow more than sales. There was a point in the middle of last year when the summer woes were hitting us hard, and cash on-hand was a premium. It was during that rough patch that I was reminded that sales fixes everything. As a company, we turned our focus towards building sales, and we had a brainstorming session with our team. We did it with two different groups and then compared ideas, and picked the ones that came up twice, and a few others that seemed feasible. For the remaining four months of the year, we implemented many of these sales building techniques. From that point on, the cash flow increased and eased a lot of tensions and pressures.

Having a forecast of big expenses that will hit your account throughout the year can help ease the surprise when taxes are due, or you have some other major expense coming up. Using your profit and loss statements from the year before to see what months are the toughest gives you a sense of what to expect going forward. Having that expanded vision of being able to see months in advance will make a surprisingly big difference when managing your cash flow, and you’ll be better equipped to handle the peaks and valleys of business. Another hot button when talking about cash flow is raising your prices, and we will get into that in the next installment of Building Blocks.

Nick Bogacz is the founder and president of Caliente Pizza & Draft House in Pittsburgh.  Instagram: @caliente_pizza