Three Primary Areas of Business

three primary areas of businessCash flow management has three distinct parts – cash coming in, cash going out and use of cash reserves and resources. Managing each of these is achieved through setting up processes in the three primary areas of your business: Marketing & Sales, Operations & Organization, and Financial Controls.

Marketing & Sales

In most businesses the great majority of revenue in generated by attracting buyers and selling your products or services to them. Whether you’re a dentist, a homebuilder or a florist, the business is supported by selling your services to people that need them. So, a great part of cash flow management goes toward managing the processes that generate sales, i.e. revenue. In fact, of the 7 Key Numbers that we use in Cash Flow Engineering, five of them measure marketing and sales activities, and each of those has a series of clearly defined processes to streamline that part of the business:

#1: Number of Leads

#2: Sales Conversion Rate

#3: Customer Retention

#4: Average Transaction

#5: Pricing

Unless you have well-defined processes in place to manage each of these, your cash flow probably isn’t optimized and you’re losing money.

Operations & Organization

A cash flow optimized company is perfectly balanced – not too big, i.e. carrying extra weight or overhead for the current need, and but not over-stressing the workforce and resources either. It takes finesse and continual tweaking to keep that balance, particularly during growth cycles. These costs are often the focus of accountants and consultants, and are represented by the last two of the 7 Key Numbers:

#6: Variable Costs

#7: Fixed Costs

While managing costs is important, continual cost-cutting can become counter-productive. Rather, growth comes through expansion, which often means increasing investment in marketing and sales.

Financial Control

Great companies don’t just watch money come in and go out, they have strategies to use their resources to for maximum benefit. Your CPA or financial consultant can be worth their weight in gold if they are helping you discover better ways to use your existing resources to enhance the value of your company. More on this in our next post!

About the Author Jeff Prager

Jeff Prager has founded, run, grown and sold dozens of businesses, small and large. Along the way he's developed the 7 Key Numbers that drive revenue in every business - the core of Cash Flow Engineering. Jeff is an author, speaker, consultant, and business coach, and an adjunct professor of economics at UC Denver.

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