The Smarter Path to Financial Returns

The PSA Blog

Helpful news, tips and business advice for small to medium business owners about how to maximise profit, minimise waste and grow and protect your business.

Learn how your business can evaluate cash flow for growth with PSA Capital Investments.

How Your Business Can Evaluate Cash Flow for Growth

In the fast-paced business world, understanding and managing your cash flow is vital for sustainable growth. At PSA Capital Investments, we’re dedicated to helping you navigate these waters. No matter what stage your business is at, we’ve got the expertise and financial solutions to ensure your investments truly pay off. Let’s break down how you can effectively evaluate your business’s cash flow for growth.

Understanding Self-Financeable Growth

The concept of self-financeable growth (SFG) is key. It’s about how much your business can grow using its own generated cash, without external funding. This rate of growth ensures you’re not stretching your resources too thin or running out of cash.

Calculating Your SFG

To determine your SFG, consider the following steps:

  • Calculate Your Total Operating Cycle: This includes the time from purchasing inventory to receiving payment for your sales.
  • Determine Your Operating Cash Cycle: Subtract the days you have to pay your suppliers (accounts payable) from your total operating cycle.
  • Assess Cash Requirements and Profit Per Cycle: Understand how much cash is needed for each cycle and the profit you make in each cycle.

The Importance of Operating Cycles

Your operating cycle is a critical factor in determining how fast you can grow. It encompasses production, sales, collection, and generating free cash. You can increase growth by either generating more free cash or speeding up your operating cycle.

Operating Cycle in Action

Imagine your operating cycle is 180 days, and you generate significant free cash in this period. If you can execute more such cycles in a year, your annual free cash generation—and your growth potential—increases.

Weighing Capital Requirements

Every business needs capital to grow. Understanding your capital requirements for start-up and expansion is crucial. This involves considering costs like property, equipment, operating expenses, and working capital.

Keeping an Eye on Cash Inflows and Outflows

Monitoring the money coming in from sales and going out for expenses is key. This helps you gauge how much of your earnings can be reinvested for growth. If your outflows consistently exceed your inflows, it’s a signal to reevaluate your business strategy. Waiting for money to come in? Here’s how to maintain business cash flow while waiting for customer payments.

On the flip side, if you have a surplus, deciding how much to reinvest versus hold as a cash reserve is a strategic decision that impacts both your business’s stability and its capacity for growth.

Maximising Returns with Tailored Financial Planning

At PSA, we’re not just about providing loans; we’re about ensuring you invest in assets that improve your return. We help you understand your cash flow needs and guide you in making the right investment decisions.

Every business is unique, and so are its financial needs. We provide tailored financial solutions that align with your business’s growth objectives and cash flow dynamics.

Need Help with Cash Flow Management?

If figuring out your cash flow for growth seems daunting, we’re here to help. Contact PSA Capital Investments on (03) 9847 7689. Our team of experts are ready to assist you in understanding your cash flow better and providing the financial support you need to grow your business sustainably and turn your growth plans into reality.

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PSA’s Director, Peter Marmara-Stewart, is a highly successful business owner and finance professional in Melbourne. As a certified Financial Planner with over 15 years of experience in business finance, accounting, and asset management, he provides clients with unparalleled expertise in asset protection, debt elimination and business restructuring. Call (03) 9847 7689 and see how Peter and the PSA team can help you get on the smarter path to financial returns.