Knowing Bathtubs and Cashflow

Today I wanted to talk about bathtubs and cashflow. You're probably wondering what do bath tubs and cash flow have in common or how are they connected, so let me explain.

Think about a bathtub and we've got plug and the tap and the vessel that’s holding the water.

Now let’s compare that to a business where the tap is the sales or the income for the business and the plug is the expenses for the business. As the money comes in bath level rises, and we get to a certain point. So what we are controlling in this instance is sales coming in and expenses going out. And if you can imagine there are maybe two lines somewhere on the bathtub around it that we want to try and keep our cash balance in so the level of the bath represents how much money we actually have in the bathtub. That is something I see a lot of clients not do so well is manage the level of the water in the bathtub. They are too quick to pull the plug out and pay everybody else's bills apart from looking after themselves, so one of the tricks is you don't want to pull the plug out and let all the water go out but we do want to regulate how much water or cash were letting go out of the business and similarly we want to be regulating the tap.

The tap is all about your market sales to get the cash coming into the business. We want to get to a point where we can predictably control that tap. One of my clients we used to know at 3pm every day. We would check what our bookings were for the next day and decide which taps we need to turn on, if at all, to make sure we have enough work coming in the next day. So there is that connection between cash and bathtubs.

Make sure you're regulating your in and out to keep that cash level at a consistently comfortable level for you and your business. Have a great day.

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