How you manage the cash flow cycle is critical to your business' financial health and profitability. The cash flow improvement calculator can help you understand how your business is performing now and lets you make adjustments to key areas to plan improvements.

Understanding the different parts of the calculator

There are three sections of the calculator:

  • your business details (including financial data)
  • your key performance indicators’ results (including marginal cash flow and cash cycle)
  • your adjustments (called My Power of One)

To start using the calculator you'll need to fill in your business's financial data first (on the left-hand side). This information is used to give you results shown in the key performance indicator section (on the top right-hand side). You can then make adjustments to your cash flow cycle (on the bottom right-hand side) to see how those changes affect the results.

Your business details and financial data

Business details

Industry type: Select from Service or Other. Service industries have different cash flow and working capital needs to businesses with tangible products to sell, which is why we’ve made this distinction. Time period: Select a time period that the financial information is coming from. Is it from the last 12, 6, or 3 months?

Financial data

Use actual financial data (or hypothetical data if you’re just researching) from the key stages of the cash flow cycle :

  • Revenue: Your business’ total income before taxes and expenses and includes fee revenue if you’re a service industry.
  • Cost of goods: Costs incurred by your business directly in the production of revenue, like factory operating costs, direct labour, materials or transport costs.
  • Overheads: Costs of running a business, like rent, gas, electricity and wages.
  • Debtors: The total owed to you by your customers for goods or services you’ve supplied them.
  • Inventory: The total stock on hand for resale.
  • Creditors: The total amount you owe to your suppliers.

Your key performance indicator results

After entering your financial information for the time period you selected at the beginning, you’ll get a breakdown of results in key areas of focus for your business’s cash flow.

Marginal cash flow: The cash flow margin measures how well your business operations create cash from sales of products or services. It’s a key profitability indicator. The result shows the amount of cash flow in cents that your business is generating per $1 dollar of revenue.

Your business’s cash cycle: This shows the total amount of time it takes for your customer to pay you for your product or service. It starts from the purchase of inventory or the provision of services to the day you’re paid.

Gross margin: This is the margin your business makes each time it makes a sale. As this increases, so does your profit and cash flow. The result shows the amount in cents you make for each additional $1 dollar of revenue generated.

Net profit: This is the profit that remains after all expenses involved in running your business have been paid. The result shows the amount of cents per $1 dollar of revenue minus overhead costs.

Investment in working capital: Working capital is the money needed to fund the day to day operations of your business, like paying suppliers and expenses. The result shows the amount of cash flow in cents you have invested in working capital for every $1 dollar of revenue.

Debtors days: This is the average time between the sale of goods or services and receiving payment for them. The faster you collect from your debtors the better your cash flow.

Inventory days: This is the average length of time you hold onto inventory before it’s sold. The quicker you get rid of it the better.

Creditors days: This is the average time it takes you to pay your creditors for your inventory or service. The longer your payment terms are the better your cash flow will be.

Making adjustments to plan improvements to your cash flow

Now that you have a better indication of how your business is performing in terms of cash flow margins you can move to the next section of the calculator: My Power of One.

You can adjust these key indicators (on the left-hand side) by increments of 1 day or 1% (the default values) to see what effect this can have on your business cycle, your marginal cash flow and your cash flow amount.

You can then use these different scenarios to start making small changes in your business plan to help improve your cash flow cycle. If you're ready to go start using the cash flow improvement calculator.

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