Ever tried rolling out bread dough? It’s like managing cash flow—both require patience, strategy, and maybe a little elbow grease. Let’s break it down:
1️⃣ Smooth it out. Don’t Overstretch
When rolling out dough, you smooth it out from the middle to the ends. But don’t let it get too thin. Cash flow is the same— You may have learned in college how to make $20 stretch.
But in business, you can only stretch cash so far. Strike a balance between fulfilling obligations to vendors and lenders while keeping the business stable and handling priorities like payroll, rent and critical investments.
2️⃣ Let It Rest
Bread dough needs time to rise, and so does your cash reserves. The goal is to have 3 months of monthly cash spend (not just 3 months of expenses) saved for a rainy day.
Give cash reserves time to build before making major investments.
Don’t rush to use short term sources of capital that have high interest rates or eat away at your daily sales unless you have a plan for repaying the money in less than a year.
3️⃣ The Right Tools Make All the Difference
A rolling pin is to dough what a forecast is to cash flow. Track cash ins and out for at least 6 months to get a sense of the rise and fall of your bank accounts.
That way you’ll have an idea of how your cash flows and you can use the forecast to smooth out any bumps or fill in any holes in the future.
4️⃣ Start With The Right Ingredients.
Just as you need the right mix of flour, water, and yeast to make your dough, include all items that affect cash flow when creating a forecast.
Include all the sources of cash inflows like income, line of credit, interest income, investor capital and include all the cash outflows like expenses, debt repayment, taxes, investment in equipment and inventory.
Once you have the right ingredients in your cash forecast then you’re able to play with the numbers and make the forecast work for you.
Rolling out dough is an art, just like managing your finances. With care and the right techniques, both can rise to the occasion!
So, are you rolling out dough—or letting it roll over you?
