This is part 8 (bonus!) of Ravit Insights series on the 7 Cash Flow Drivers essential for SMEs.
Image credit: Mesut Kaya via Unsplash
Cash flow negative: Lifestyle will be a drain on your cash flow.
When I was a banker, one of the most common cash flow issues I saw was money being taken out of the business to fund owner lifestyles. In fact, many businesses are taken to the brink of survival for this exact reason.
The motivations are understandable. Business owners have homes, families, schools, holidays and the rest, all of which requires money.
But the question is, how much can you take before it affects your business?
Many of these business owners’ mistakes was not understanding how their business worked, and taking out money that was vital to its ongoing growth and survival.
Our series on 7 cash flow drivers seeks to showcase how and why each of these impact business cash flow.
The reason is so that business owners can get a better understanding of their business. Cash in the bank does not mean you’re doing well. Conversely, no cash in the bank doesn’t always mean you’re doing poorly.
Businesses need cash to withstand downturns, to fund growth, make larger capital purchases, and operate efficiently on a daily basis. A financial model is important to understanding how much cash is needed in your business to operate well, and to grow if necessary.
And once you understand that, you’ll be able to take the money you can with confidence that it’s not going to negatively impact your personal cash flow in the future.
Check out the other cash flow drivers all business owners should understand.