How to Improve the Cash Flow in Your Business by Setting Cash Targets

There are three main methods I have used (and I have seen others use) to improve internal cash-flow. These are

1.      Reduction in the Cash Conversion Cycle (CCC),

2.      Profitability improvements and

3.      Setting cash targets

I will cover aspects of setting cash targets in this article.

There is a saying that revenue is vanity and profits are sanity, but cash is king. You have probably experienced how much time and effort it takes to run a company that’s short on cash. There is little time to plan, and you may also find few opportunities to increase profits. You may have to accept jobs at prices you don’t like, just to get some cash in the door, and you may need to accept inferior supplier arrangements just so you can defer payments.

In short, you are spending your time bobbing and weaving.

You might run into some major concerns: you might lose a major client, you might not get paid on a large receivable, you might have an unexpected expense. All of these are normal issues to deal with if you have enough cash, but they can be crises with a low cash balance.

So how much cash should you have on hand? At a minimum, you should have a balance of 10% of your most recent historical 12-month revenue, but sometimes you need up to 30%. The percentage depends on the following factors (and others)

So, if you have a company with $1 million in revenue, you should have between $100,000 and $300,000 in cash on hand.