Cash Flow
The movement of cash in the business. 'Profitable on paper, broke in the bank' — a common problem in growing stores.
In practice
You bought $22,000 of inventory, sold $14,000 — on paper that's $14,000 in revenue, but $0 in the bank. Cash flow requires planning.
Common misconception
'Having sales means having cash.' A B2B store with Net 60 terms can go bankrupt despite growth.
How to fix it
Negative cash flow? (1) reduce inventory, (2) increase inventory turns, (3) sufficient net terms, (4) a 90-day cash flow forecast.
Example
A fashion store: $55,000 in revenue, 'profitable.' It bought $95,000 of summer inventory. Bank balance: $0. Couldn't pay rent.
Priority
Build a monthly cash flow forecast. Keep 3 months of fixed expenses as a reserve.
Related terms
Keep learning. Metrics that touch the same area:
- Lead TimeOperationsThe time from ordering with a supplier to receiving inventory. Critical for calculating the reorder point.
- ROI – Return on InvestmentFinanceA general profitability metric: (net profit / investment cost) × 100. Different from ROAS — it includes all expenses.
- AOV – Average Order ValueFinanceTotal revenue divided by number of orders. The biggest lever for increasing revenue without more advertising.
- LTV / CLV – Customer Lifetime ValueFinanceTotal expected profit from a customer over the entire relationship. A healthy LTV:CAC ratio is 3:1.
- Gross MarginFinance(Sale price - COGS) / sale price × 100. The basis for every pricing and advertising decision.
- COGS – Cost of Goods SoldFinanceThe direct cost of producing or acquiring products sold. Includes: product + import shipping + customs + packaging.
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WhatsApp alerts when something important changes. No dashboards, no hassle.