Good post but surprised by his understanding of cash-flow positive:
Being cash-flow positive is...when your costs not including salaries are lower than your revenues
Well spotted. Many businesses fall over by misunderstanding cash flow, especially in the early days when they don't have much incoming cash.
Terms like 'costs' and 'revenue' have no place in cash flow forecasts - it's all about cash in and cash out (including salaries, assuming they're paid). If your product costs are less than revenue, you have margin (sometimes called profit, but that's not quite right either); but if you have to pay lots of costs before you receive revenue, you can hit a cash flow wall no matter how large your margin is.
I had one client who re-sold physical products. They were paid by the buyer on 14 day terms, and had to pay their provider on 30 day terms - so they actually got paid two weeks before they had to pay for the product. Margin was low - but cash flow was ridiculously positive.
It's almost correct! Just replace "costs" with "outgoing cash", cross out "not including your salaries" (if you pay yourself a salary in cash, it is by definition included in "outgoing cash"), and replace "revenues" with "incoming cash". ;-)
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Good post but surprised by his understanding of cash-flow positive: Being cash-flow positive is...when your costs not including salaries are lower than your revenues
Well spotted. Many businesses fall over by misunderstanding cash flow, especially in the early days when they don't have much incoming cash.
Terms like 'costs' and 'revenue' have no place in cash flow forecasts - it's all about cash in and cash out (including salaries, assuming they're paid). If your product costs are less than revenue, you have margin (sometimes called profit, but that's not quite right either); but if you have to pay lots of costs before you receive revenue, you can hit a cash flow wall no matter how large your margin is.
I had one client who re-sold physical products. They were paid by the buyer on 14 day terms, and had to pay their provider on 30 day terms - so they actually got paid two weeks before they had to pay for the product. Margin was low - but cash flow was ridiculously positive.
It's almost correct! Just replace "costs" with "outgoing cash", cross out "not including your salaries" (if you pay yourself a salary in cash, it is by definition included in "outgoing cash"), and replace "revenues" with "incoming cash". ;-)