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Helping Small Business Clients Maximize Extra Cash

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In this article, Mike Milan (aka Cash Flow Mike) focuses on a different way your small business clients can maximize cash flow.  There is a simple technique to find hidden cash in your current situation that he calls Mining Your Business.

Mar 29th 2022
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When it comes to maximizing cash flow for small businesses, the Mining Your Business method consists of breaking your client's operation down into two separate categories: cash generating activities and cash conversion activities.

By understanding the difference between the two you can help illuminate problems that exist in the way your clients sell goods or services and collect and spend the money they earn.  It connects the income statement to the balance sheet to give a very holistic view of the way money moves through the business.

The steps to Mining Your Business are:

1.  Calculate your company’s cash generating and cash conversion ratios.

2.  Compare your company’s results to another number like the industry average or a desired goal you have for yourself.  This is also known as the Target Ratio.

3. Convert the comparison of the two numbers to a financial impact dollar amount.

Calculate Your Ratios and Compare Them to Your Target Ratios

I usually combine the first two steps for speed. This means I have already determined my Target Ratios and am ready to compare my new calculations to these Targets. 

The one thing to remember about ratios is that they don’t mean anything unless you compare them to something else.  Other than that, it's just a number.

In the case I prepared for this article, I used the industry average for paint manufacturing companies, NAICS code 325510.  Here were the results I gathered:

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