What is Cash Flow positive each month?
The cash flow positive is a metric that calculates the difference between your monthly income and expenses. If you are making more than you are spending, then you have a cash flow positive situation. This means that your business has enough money to pay its bills each month which is great news for any entrepreneur!
How to calculate your monthly cash flow
The monthly cash flow is calculated by adding any income coming into the household (regardless of what month it comes in).
It includes money from your retainer, bonuses, overtime wages, business income, interest on savings accounts, and dividends. It does not include withdrawals made on an account like withdrawing money to buy groceries or pay for expensive clothes.
If you get paid every two weeks on Friday at 4 pm for $564 before taxes; From 6/17- 6/30 do 6 more regular payments of $564 each after taxes; Then 7/1-$7/20 do 13 payments totaling $6134 paid throughout July. Your cash flow is -$699 implying that you got this paycheck with the understanding that you would pay back a few of the earlier payments made.
Paid every other Friday on June 17th, 24th, and July first with wages totaling $1134 before taxes; From June 26-July 13 do 11 more regular pay periods after-tax totaling $8884 paid throughout July. Your cash flow is +$2150 implying that your income was higher this paycheck compared to others because it included some extra money from bonuses or overtime work done in previous months.
It is not always easy to calculate your monthly cash flow. To do this, you need to compile all of the information that can be found on your last couple of months’ worth of bank statements, including income and expense data for both savings and checking accounts. Then use accounting software like Quickbooks or Quicken (or more practically, Google Sheets) to create a list.
The importance of understanding your monthly cash flow
Understanding your monthly cash flow can help you prioritize and plan to better meet your future goals. It also helps avoid confusing and frustrating situations which come from borrowing money for primary household expenditures because short-term needs were prioritized to the detriment of longer-term goals. Though we may not be able to predict financial changes such as emergencies or other unexpected expenses, understanding our monthly cash flow patterns help focus on long-term sustainability means we should always have enough cash left over after meeting our necessities to save, invest in ourselves, and pay off debt.
A common scenario might be paying $300 for a car service during the month only to end up having a major accident a week later that causes us a much larger expense of $1500.
Why is it important to have a surplus at the end of every month
It’s important to have a surplus at the end of every month because if you don’t spend it within the month, you will spend it in interest. Interest is formally known as the cost of carrying debt, and the rate of interest on US Treasury Bills is typically about 3% for twelve months. For example, if you had $1000 leftover after all monthly expenses are accounted for but would like to save more money by using that money towards loans or retirement funds rather than spending it frivolously on monthly expenses then let’s say your salary was $1200 per month then at 3% your remaining balance would be reduced by 6 dollars each year. So whereas having a surplus may not sound like much at first glance, in reality even small surpluses over time can really add up.
How do I know if my company is in trouble because we’re not profitable enough?
Answer: A company is in trouble if they are not profitable for a long period of time. It could be due to factors like underperforming employees or changing consumer trends. A company will need to restructure and plan for the future so that things can get better again.
An unprofitable company will have difficulty paying its debts and fulfilling other obligations such as purchasing equipment, office supplies, etc., accumulating more long-term losses than short-term gains because it does not generate enough revenue from operations to cover ongoing costs and interest charges on debt. As operating losses deepen over time problems may become difficult or impossible to solve without major changes in management or ownership. Management teams must address declining customer service and softening demand while potentially contending with sophisticated competitors.
Examples of what can happen when you are not a cash-flow positive homeowner
You live paycheck to paycheck, and if your paychecks stop coming in or you miss a few weeks’ worths of bills the lender will foreclose.
It’s very hard to get a mortgage if you have an unstable income because lenders will worry about whether or not they’ll end up with their money back. What makes it especially difficult for those who are self-employed is that there is no stable income as evidenced by all those people trying to start their own business from the bottom.
Overemployment also prevents individuals from being cash-flow positive homeowners because many people are forced at some point in life to take on debt in order to maintain living conditions while struggling with debt on top of more expenses like car payments, student loans, etc.
Helpful tips for becoming a more financially responsible homeowner.
Be aware of your monthly income and expenses. Know how much you make each month, know what bills are due every month, and keep track of all the necessary payments that come out at different times during the year such as taxes or maintenance fees.
Do not let this information overwhelm you but instead use it to become more financially literate because once you understand where your money is going then hopefully in time things will start to change for the better. Few people enjoy having their finances managed by someone else so take control over some aspects of your life today!
The article has come to an end. The following bullet points are suggestions of what you can do if your company is not cash-flow positive:
Update management on the current status and explain where things went wrong in hopes that they will fix it
If money was borrowed from another source like shareholders, make sure to keep them updated with financial statements so everyone knows what’s going on at all times because transparency leads to better business practices overall. A satisfied shareholder means less risk for investors or lenders who may be skeptical about putting more money into a failing firm. Do whatever needs to be done within reason (cut costs) until there’s enough revenue coming in again through sales etc., then start paying off debts little by little starting with the ones with higher interest rates first.
In addition, if you are a homeowner and not cash-flow positive it’s important to make your payments on time but also look for ways to cut down expenses because even though paying bills is an obligation there isn’t anything wrong with finding money in the budget to pay off debt faster or reduce monthly outflows here and there. Stay aware of what comes into your bank account each month as well as how much goes out so that over time things will improve! This system may seem tedious at first but eventually, you’ll get used to doing everything by yourself instead of relying on someone else which means better financial literacy overall throughout life!
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