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The Importance Of Focusing On Cash Flow

When you’re starting your own creative business, one of the most important things you need to focus on is cash flow.

Cash flow refers to the movement of money into and out of your business. Your inflows are your revenues, and your outflow is your expenses.

Each month you want to have positive cash flow for your business. Operate too long at a negative and you’ll either go out of business, or need to find some cash inflow from other sources like debt or investment.

If you can figure out a way to have positive cash flow with your business, you can survive for as long as you like, which means you have more time to learn, grow, contribute, and serve your clients.

Going out of business means you aren’t able to do those things anymore.

So, how do you “focus on cash flow”? Simply look at how much revenue you bring in each month, and how much expenses are going out.

Are you left with a positive amount or a negative?

Then ask yourself “what can I do to increase revenues (inflow) and decrease expenses (outflow)?”

Think of your business as a simple system like a bathtub. Water goes in from the faucet, and water goes out through the drain.

What would you do to increase the amount of water in the tub?

Do the same for your business and you’ll start getting more of the results you want - more positive cash flow, a greater ability to grow and contribute more of your work into the world.

  1. 1

    I've been told to change our business model from paying x and receiving x+y in z days (dropshipping) to receiving x and paying x+y in z days (?).

    1. 2

      I don't know your business well enough to give you any feedback there, but happy to discuss further? I think simplifying down to first principles always helps when I'm presented with a rule like that. What am I optimizing for? What's the biggest constraint? What can I start testing today to see if it improves the outcomes I'm optimizing for?

      Hope that helps :)

  2. 1

    Thanks for this post, @daren!

    I still remember going to MicroConf for the first time (in 2017, I think?) and learning all about subscription metrics.

    1. Some specific metrics you can focus on increasing to improve cash flow are improve Average Revenue Per Customer (ARPU) and Lifetime Value (LTV).
    2. And ones you can reduce to improve cashflow are user-churn and revenue churn.

    Once you have this data measured with a tool like Baremetrics or ProfitWell, you can do experiments to move the needle in the right direction for all of these.

    Based on your bathtub metaphor, 1 helps you pour more water into the tub and 2 helps you minimize the water out through the drain.

    Just my two cents on actual metrics IHers can track and improve to have positive effects on cashflow! Worked for me :)

    1. 1

      Of course! Thanks for reading! I've heard good things about MicroConf, sounds like it was worthwhile for you?

      And yes, you nailed it. If you can figure out those metrics and use them to inform your decision making you're well on your way.

      One of my favorite quotes about how to succeed in business is "Do more of what works, less of what doesn't"

      You can't do that if you aren't measuring and analyzing your data, so being able to do that is a bit of a superpower.

      (We actually built an app to help people do that as well - http://benchmark.app)

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