What’s Keeping You Up at Night?


Small business owners have a lot on their plates, and it’s no surprise that sleepless nights are a common occurrence. Issues regarding people, process, and profit are among the top concerns I hear about. The one problem that seems to create the most insomniacs is concerns over cash flow and profitability. It’s no wonder. These ingredients are central to the ability to do business and to grow. What are some steps you can take to ease your mind and get a peaceful night’s sleep?

Fundamental to managing your cash flow is an understanding of your Cash Operating Cycle or Cash Conversion Cycle. This is simply the period of time it takes your business to spend cash on your resources to produce sales and then convert it back to cash. This information is easily calculated from your financial statements using three major components:

  • Inventory
  • Accounts Receivable
  • Accounts Payable

Understanding these components enables you to benchmark your current time, expressed in days, then monitor changes as you begin to implement strategies to improve. For each day you improve your Cash Conversion Cycle, the more cash you have without having to borrow. The net effect is that less working capital is required to operate your business.

Many businesses fail, in spite of profits. This may be due to:

  • a lack of cash flow,
  • a lack of understanding that profitability does not equal cash, and
  • the failure to plan – to FORECAST how you want your business to grow.

Cash flow forecasting is one of the most important cash management tools you can implement – it charts a course for the longevity of your business.

Forecasting involves looking at your sources and uses of cash and developing a profit plan for a minimum period of one year. It provides insights and discussion about potential scenarios and situations you may encounter and yields strategies for addressing them. Although your plan will never be 100% accurate, it will document your vision for the future of your company and how to get there. Your profit plan should include:

  • Forecasted Income Statement
  • Forecasted Balance Sheet
  • Forecasted Cash Flow (including operations and capital requirements)

This plan is dynamic; it is both a metric to gauge your progress and an evolving strategic document that should be updated and refined as your business progresses and your objectives become more focused and specific. Using your well-prepared forecast as a guide keeps you moving in the right direction while steering clear of unanticipated surprises that can detour you from your growth objectives. And it will help you manage the two very separate concepts of profitability and cash flow so that your business can thrive. Sweet dreams!


Written by

Rick Arthur is a CFO whose expertise is built on Financial Intelligence and 35 years in senior financial roles. Coupled with a CEO’s perspective and the experience of building his own $20 million company, he brings a unique depth of insight into business from the top down. Wired to get to know people, Rick works hand-in-hand with business owners of intentional, growth-oriented companies, solidifying relationships as a trusted advisor and confidant to his clients. He leverages his experience to help business owners gain traction and stay laser-focused on the company’s vision, cash flow, and profitability – all while creating big picture solutions for strategic planning, growth and sustainable success.