21. Maximize Cashflow
May 01, 2026 03:57
· 9:29
· English
· Whisper Turbo
· 2 speakers
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Speaker 1 (21. Maximize Cashflow)
You know the number one reason 9 out of 10 new businesses don't see their 10th anniversary? It isn't that owners lack passion or drive. It isn't that there's insufficient demand for the product or service. It's not that they aren't logging the hours, and it's certainly not because they aren't marketing and selling. It's a cash thing. Businesses fail when they run out of cash. Businesses fail because they can't pay their bills.
0:43
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Speaker 1 (21. Maximize Cashflow)
A business cannot survive even a week without the oxygen of cash. Maximizing cash and cash flow is critical if you expect to keep the doors open. It's also critical if you expect to thrive and flourish for the next 20 or 30 years.
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Speaker 1 (21. Maximize Cashflow)
So how do you maximize your cash flow so that your business doesn't become just another statistic in the business obituary column? Let's start with a very critical point. Not all cash is created equal. Cash can be generated or used in only three ways.
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Speaker 1 (21. Maximize Cashflow)
from operating activities, from investing activities, and from financing activities. While all three are cash, only one of them is the result of running the business end of your business, and that's operating cash flow, or OCF. Sure, you can generate cash flow by selling your company car or your used computer. This is called investing cash flow.
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Speaker 1 (21. Maximize Cashflow)
Or you could borrow money from the bank or get your rich uncle to invest a few more dollars. This is called financing cash flow. But neither one of these are sustainable. There's a limit to how much of your things and stuff you can sell, and there's a limit to how much money you can raise or borrow. When business owners start to confuse the sources of cash in their bank account, they're headed for trouble.
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Speaker 1 (21. Maximize Cashflow)
Operating cash flow tells the story of how productive management is at converting profits, which are a theory because you can't spend profits, of converting profits into cash, which is a fact because you can spend cash. To be sustainable, your business must produce cash from the operations of the business.
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Speaker 1 (21. Maximize Cashflow)
If you're unhappy with your operating cash flow, you have a total of five levers you can pull. You will notice the first two are related to the income statement, and the last three are found on your balance sheet. Your income statement reports the first two. Revenues, sell more. Expenses, spend less. And your balance sheet reports the last three levers.
3:28
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Speaker 1 (21. Maximize Cashflow)
Reduce accounts receivable, reduce inventory, or increase accounts payable. That's all you get. Five levers. These are the only ways to increase the operating cash flow of any business. Sell more, spend less, collect more by minimizing your receivable days, which is the average length of time it takes your customers to pay you what they owe you.
3:57
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Speaker 1 (21. Maximize Cashflow)
Stop stocking so much inventory for so long before it sells. That's called reduce inventory days. Or extend the length of time it takes you to pay your bills, which would be increased payable days. We all have to pay our bills, but we do have some say as to when we pay them.
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Speaker 1 (21. Maximize Cashflow)
The longer you can extend your payables, the more OCF, operating cash flow, the more OCF you'll have to run your business. Why would this be true? Because if you haven't paid your bills yet, you still have the cash, not your vendors. What about receivables?
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Speaker 1 (21. Maximize Cashflow)
If you haven't received the money yet, the cash is in your customer's bank account and not yours. The longer your customers owe you money for the stuff they purchased but haven't paid you for yet, the longer they have your cash and you don't, which is bad for your operating cash. Inventory is the other balance sheet category that will directly impact operating cash.
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Speaker 1 (21. Maximize Cashflow)
Unsold inventory is an operating cost and therefore reduces operating cash. When inventory gets sold, the amount sold is recorded on our income statement as an expense entitled cost of goods sold.
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Speaker 1 (21. Maximize Cashflow)
Part of all solid business analysis involves the calculations to convert monetary amount of receivables, inventory, and payables into days outstanding. It's a lot easier to see the impact of escalating receivables or inventory when the number is presented in days instead of dollars or whatever currency you use.
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Speaker 1 (21. Maximize Cashflow)
CFO School Board does the day's math for you by converting your receivables and your inventory and your payables into days outstanding. I advise companies across a very wide spectrum, and I have found that a business with profits of $3 to $5 or even $10 million a year typically has the exact same core problems as a company with profits of $100 a year.
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Speaker 1 (21. Maximize Cashflow)
They're both unaware of the distinction that profits are not cash, that not all cash is created equal, that their operating cash flow is missing in action, and they're burning cash while producing a theoretical profit. While they may be operating on different scales, both the big guys and the small guys have an undiagnosed tumor.
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Speaker 1 (21. Maximize Cashflow)
which is silently killing the business because they are not as effective, as efficient, and as productive as they could be. Remember what I said. The goal is to get rich, not to get big. And the way to get rich and stay rich is to maximize and optimize the profits and operating cash flow your business generates. I'll say it another way. Getting big is a result of success.
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Speaker 1 (21. Maximize Cashflow)
Success is not the result of getting big. If your profits are going up and your cash flow is going down, that's a red flag. It's what I call a financial weed in your business's garden. Financial weeds are typically only seen when the business owner converts raw accounting and bookkeeping financial data into usable business and financial optics, which is what a great financial school board does.
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Speaker 1 (21. Maximize Cashflow)
If you see a weed as a result of measuring and optics you receive from CFO's school board, it's a wake-up call to take corrective action. Here's the best part about the cash flow maximization strategies of reducing expenses, reducing receivable days, reducing inventory days, or increasing payable days. Here's the best part. Very small changes can have enormous ramifications on your cash flow.
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Speaker 1 (21. Maximize Cashflow)
Depending on the size of your business, a three to four day swing in any one of these categories can literally mean hundreds of thousands of additional cash in your bank account on the exact same amount of revenues you're producing now. Do them in combination and it's staggering how much incremental operating cash flow and therefore cash in your bank account that you'll generate. It's not uncommon.
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Speaker 1 (21. Maximize Cashflow)
for a business with a million dollars in sales to be able to improve their cash flow and thus the amount of cash in the bank by over $100,000 in less than 90 days. While cash might be king, operating cash flow is the almighty dictator. If you need additional strategies for managing your receivables, inventory, or payables,
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Speaker 2 (21. Maximize Cashflow)
See my tutorial coaching video, Recapturing the Lost Cash Receivables, Inventory, Payable Strategies.
This transcript was generated by AI (automatic speech recognition). May contain errors — verify against the original audio for critical use. AI policy
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