How Businesses and Individuals Go After Cash Flow
Cash flow is the ultimate goal whether you’re an individual or a business. Cash flow is what is left over from your revenue or income after all expenses are paid for. There are decisions on how to allocate the cash flow such as investing, saving, etc. but it’s meaningless unless you actually are accumulating cash flow.
Let’s look at various ways to cash flow from two perspectives: a business and an individual.
Cutting Costs – You Only Can Do So Much
If you have paid attention to the earnings reports over the previous few months in the economy, you’d know that companies have been achieving profitability or positive cash flow by cutting costs. For the most part, this has been in the form of layoffs (thus, rising unemployment). While this has helped achieve cash flow during a time of decreasing revenues, there is only so much that you can cut. There are some things a business cannot cut in order to stay in business. Once you’ve cut everything, you have to eventually focus on revenue growth. This is the scenario for many major companies these days.
When it comes to an individual’s personal finance, cutting costs is important during times of flat or decreasing income. Maybe you lost your job, then of course, cutting back is a natural process. Or maybe, you just recognize that there won’t be much opportunity for a few years; thus, you need to cut back and make sure you’re saving enough money during these few years. Minimizing your expenses and spending is an important aspect of achieving cash flow.
Revenue Or Income Growth
The other way to grow your cash flow is to grow your revenues. A business can grow their revenues by increasing sales in their established product or service lines, or they can find new areas to grow into. In today’s economy, it seems many businesses are competing over a shrinking pie, meaning it will be tough for them to grow revenue unless they innovate or get into other lines of business.
On an individual perspective, your income is your salary or your bonuses from your career and other income streams. You need a number of things to align for your income to grow. First, you are pretty dependent on your industry. Simply put, if your business or industry isn’t growing, it is tough to increase your income. Second, you need to grow in your career by growing your relationships and skill set. If you are in a growing industry and you are a go-getter that is progressing quickly in your career, you’re likely to see some income growth and as a result, positive cash flow.
Investing Cash Flow For Future Cash Flow
When a business achieves positive cash flow, most businesses will invest that money in order to grow the company. This might mean hiring additional employees, or investing in new technologies or a new marketing campaign. The goal is to invest past cash flow to grow future cash flow.
On the individual level, this might not be as intuitive. First, you need to be saving money for your future (i.e. retirement). Excess cash flow after your basic savings might be invested in yourself or your other income streams to produce additional income. For example, you might invest in some training or education to grow your skill set. You might invest in an income producing property. You might invest in an online business (like I do).
In Your 20s…
Most readers in their 20 will probably ignore the business cash flow discussion in this article, and that is fine, but it’s definitely good stuff to continue to learn about especially if you have entrepreneurial goals.
On an individual level, 20-somethings really need to start looking at their money differently. Viewing money as cash flow is a great thing to learn. This cash flow can grow in a handful of ways and you can invest this cash flow wisely to produce additional cash flow in the future.
Last thing… notice, there was no mention of debt in this article. By maximizing positive cash flow, you can avoid the usage of debt. Definitely a great goal is our over-leveraged society.