Cash flows in and cash flows out of every business. Whatever your job, you contribute to both flows: You are a resource that costs dollars, and you use or somehow influence the use of other resources that cost dollars. At the same time, your actions have a direct or indirect effect on cash coming into the business.
But what are the key factors that drive that two-way flow? If you can identify those factors in terms of your company’s basic operations, you will gain a powerful tool for growing your business and ensuring that the cash flowing in exceeds the cash flowing out.

It focuses on what I call cash drivers, seven things that control virtually all cash flow for virtually every business almost all of the time. They are: sales growth; gross margins; selling, general and administrative expense (SG&A); accounts receivable; accounts payable; inventory; and capital expenditures (Capex). I’ll tell you later how to understand, measure and analyze your business, as a whole and in its individual parts, in terms of these cash drivers.

You may be the owner or president of the company and trying to come to grips with trade-offs among market share, pricing and profitability. Or maybe sales management is your area, and you need to think through the terms of a new sales force compensation plan, one that gives adequate attention to a new product line that seems to hold great potential for the company’s future. Perhaps you are responsible for office management and have been asked to hold head-office overhead costs flat as the company expands geographically. Every area of the business, whether product management, sales, purchasing, service or shipping, has issues that can be better managed in light of the dynamics of the seven cash drivers. Before we take a closer look at those cash drivers, though, we need to have a clear sense of the nature and importance of cash flow itself.