It takes money to start a business.
Money can come in the form of a loan, a credit card, a savings account, or even pre-orders. Or, time and sweat equity become a proxy for money until there’s enough cold hard cash to invest in growth.
It also takes money to grow a business.
A business invests in its operations, marketing, and offers so that it can sustainably build the structure needed to grow.
So… um… where does this money come from?
Do you have to make it big in order to make it bigger? Do you have to inherit a windfall or pinch pennies and save up? Do you have take on credit card debt, get a loan, or borrow from family?
Some business owners do get a “lucky break” and use it to build a bigger business. Others do inherit a windfall and invest in growth. Some do pinch pennies or take on debt to free up the cash they need to grow.
Of course the options we have available to us depend on quite a bit: family history, credit score, previous experience, personal savings, partner’s salary… But our financial options are also impacted by gender, race, sexuality, geographic location, immigration status, ability, education, and other factors. Financially marginalized people have far fewer options than financially privileged people.
And that means that financially marginalized people also have fewer options for investing in the growth of their businesses.
We need a different way to invest in growth.
Sure, we can invest sweat equity and time into the growth of our businesses. But, again, financially marginalized people are also most likely to be limited in the amount of time they can spend working by caregiving or other work.
Without an influx of outside money or an abundance of time, the answer is cash flow.
Prioritizing cash flow helps us create the financial conditions that allow for growth in a business.
You need money on hand in order to invest in marketing, team members, and offer development. Even with a viral message or a great PR hit, if the business doesn’t have positive cash flow, it’s hard to make good on opportunity.
But the way we talk about money in a business often isn’t in terms of cash flow. That makes it difficult to prioritize and manage for cash flow. Instead, we talk about money as two-dimensional—money in, money out. Revenue and expenses.
We get stuck on finite numbers like the profit or loss on a given month or year.
We start to see profit as something that can be added to or subtracted from—and we miss the opportunity to play with money over time to achieve our goals and make a positive impact in others’ lives.
Thinking two-dimensionally makes it really hard to see what the business can afford on an ongoing basis. And an “ongoing basis” is exactly how many (most?) growth investments are paid for.
If you want to run ads, it’s not a single expense. It’s a monthly retainer or portion of ad spend to your ad manager plus the ongoing expense of advertising. If you want to hire a director of operations, it’s an ongoing monthly salary or budget for wages (not to mention benefits and taxes). If you want to invest in better software to manage your client relationships and enhance the experience of your offer, it’s an ongoing subscription fee.
When the only way you have to think about money is revenue and expenses, that kind of commitment can feel risky. You wait until you have plenty of money saved up in the bank. Or you take on more work yourself to create the “extra” money. Or you skimp on other expenses to make room for this new one.
This can really hamper a business’s growth.
And since women-owned, Black-owned, queer-owned, and other financially marginalized groups of business owners are less likely to have access to outside capital, loans, or even credit cards, they face the additional burden of squirreling away that savings or pinching those pennies. And that burden all too often means having to stay small, precarious, or both.
To get specific, according to the United States Small Business Administration, Black and Hispanic-owned businesses are twice as likely as white-owned businesses to start with less than $10k in working capital. For all of the talk of starting a business for pennies—which is possible, many online business owners today get started with a fancy website, Facebook ads, copywriting, and a YouTube channel… all after purchasing a high-end program or hiring an expensive coach.
Black and Hispanic business owners are less likely than white business owners to get approved when they do attempt to access capital and, when they are approved, they’re less likely to be approved for the full amount requested.
According to researchers at Stanford, Black business owners borrow the equivalent of half as much of the personal equity they start with. White business owners borrow the equivalent of 1.7 times the personal equity they invest in their new business. Add in the disparity in personal equity and we see Black-owned businesses starting up with about $30k and white-owned businesses starting with more than $93k. And over the course of that first year? White-owned businesses borrow almost 6x as much as Black-owned businesses.
And women? Well, women receive less than 5% of all the capital lent to small business owners—but they own 30% of small businesses. Further women only receive about 16% of all traditional small business bank loans and are more likely to be rejected or receive more stringent terms, according to the Senate Small Business & Entrepreneurship Committee.
Taking an intersectional approach is sure to surface even more blatant disparities—if such a thing is even possible! (And, unfortunately, it is.)
Less capital adds to the potential for exploitation.
Thinking two-dimensionally about a business’s money also hurts workers. No matter your demographic, if you’re feeling financially precarious, you’re way less likely hire well.
When a business is focused on expenses, it’s more likely to be handling money in ways that serve the bottom line instead of investing in workers. Either businesses can’t hire the people who would love to work for them. Or in the businesses that do make the leap to hiring, workers are much less likely to receive appropriate pay, benefits, or working schedules.
Again, the workers most likely to take part-time jobs, work for lower pay, or accept far fewer benefits are more likely to be women, Black, POC, queer people, and disabled people.
So we’ve got this double-edged economic sword that keeps businesses owned by financially marginalized people small, while also creating the conditions for worker exploitation (not to mention the self-exploitation that happens in this system, too).
Shifting the way we think about money in our businesses to cash flow-first can help us unlock new opportunities.
What Is Cash Flow?
Cash flow is how we talk about the way money moves through a business.
Cash flow is revenue and expenses plus the dimension of time. It’s the way we explain why some weeks it can feel like you’ve got more money than you know what to do with… and other weeks it can feel like money is uncomfortably tight.
A simple way to illustrate the difference between two-dimensional and three-dimensional financial thinking is lump-sum payments and payment plans.
If you’re focused on profit & loss, you’ll look at your bottom line for a given year to determine the budget you want to set for investment for the next year. Maybe the magic number for you is $12,000. You’re more likely to drop a lump sum investment—say on a website or strategic plan—than on something like a salary or ongoing coaching.
If you’re focused on cash flow, you’ll look at the free cash available during any given month and plan your investments so that you can make multiple ongoing investments at once—spreading the financial impact out over many months. You’re more likely to invest in a team member, advertising, or coaching for the long haul. Maybe even all 3! You’re placing a bet that while those investments might make things tight for a period of time, the benefit will compound and your business will grow and get stronger.
Cash flow gives us options.
Even without a nest egg of business savings, you can confidently make investments in your business (and its growth) when you know how much available cash you’re going to have on hand at any given time.
For my own purposes as a business owner, I don’t necessarily need to know how much is going to be available in an account on, say, September 23. But I do need to know that the money flowing in will accommodate the money flowing out through the month. That said, plenty of other businesses operate on a much stricter cash flow schedule. And, how casual you can be about the way you track cash flow changes over time.
I think of the system to create positive cash flow as having 3 core components: volume, capacity, and price.
First, I use the word “system” here purposefully. And it’s based on a true systems-thinking definition via our muse for this month’s focus on systems, Donella Meadows:
“A system is a set of related components that work together in a particular environment to perform whatever functions are required to achieve the system’s objective.”
So when I say it’s a system, it’s a system like a habitat or family or restaurant is a system. It’s organic, non-linear, and complex. I don’t mean that it’s a system like a process or a procedure which can be reduced to a relatively simple, linear set of tasks.
Cash flow is a system—with a three-dimensional environment and 3 core components.
Each component is made up of variables that can be adjusted in order to increase free cash flow or increase ongoing investment in a sustainable way.
Each component and its variables are influenced by other systems: sales, marketing, brand, operations, business model. And they’re also influenced by the overall business system at play.
Let’s take a closer look at each component.
Volume is the number of customers or clients a business wants to service or the number of products it wants to have the ability to produce.
When I think about volume, I’m often thinking at the intersection of my business model and my revenue target. If I want the business to generate $250k and my service is $1500/month, how many clients do I need? About 14.
Then I can look to see how the capacity of the business needs to shift to accommodate that many clients.
Capacity is how the structures and resources of the business limit or expand the business’s ability to take on customers or produce products.
While volume is a measure of potential production, capacity is a measure of operational strength.
Volume contributes to revenue. Capacity contributes to expenses.
It takes money (or your valuable time) to build capacity. It likely even costs other people’s time (which is your money). Plus, there are also hard costs involved in building capacity, too. Things like software, venue space, shipping, material costs, etc… can all contribute to the cost of capacity.
Price, of course, is the third component of cash flow. Price gives you a way to control volume, pay for capacity, and create the positive cash flow you need to grow the business if you want to.
There are many, many factors that go into price—and not all of them fit neatly into a math problem. While volume and revenue can give us an idea of what “makes sense” as a price for our product or service, it doesn’t tell us the whole story.
The market you choose to serve, the level of service you provide, the maintenance your product requires, the ways you want to share revenue, etc… these can all be factors of the price you charge.
Financial behaviorist Jacquette Timmons puts it this way:
“For consumers, it’s about how and why you react to prices the way you do. For business owners, it’s about how and why you set prices the way you do.
For consumers, price can provide a window into the relationship you have to work, to consumption, to the reality you’re experiencing vs. the reality you wished you were living.
For business owners, price can provide a peek into the relationship he/she has with his/her business, customers, and family.”
Volume, capacity, and price give us ways to approach increasing cash flow in order to grow.
Instead of a math problem without context or consideration of the future, you have a clearer, more complete picture of your options. You can see money as less of an either/or proposition (either it’s revenue or it’s an expense) and more of a flow through a system that can be redirected in any number of ways.
Of course, math is nice… it’s dispassionate and (mostly) objective.
So before I go further into why cash flow is a feminist issue—and helps you live out feminist and anti-colonialist values through your business, let’s take a look at just a bit of math.
Prioritizing Cash Flow In Practice
We’ve already got our first data point in terms of volume. I gave the example of generating $250,000 per year with a $1500 per month service—meaning the business needs to be able to simultaneously service about 14 clients on an ongoing basis.
The number of clients this business needs to service gives us a benchmark to calculate the cost of capacity. What does it take to service 14 clients at once? Well, for this business, it means paying the owner, paying an account & project manager, and paying a team member to implement. This business also runs on a couple of software programs and invests in just a bit of marketing to maintain their pipeline. Let’s call that about $13,000 dollars per month.
And remember that number includes owner’s salary (plus payroll taxes and insurance) but it doesn’t include profit distribution.
Now, on to price. We can find the cost per client by dividing the cost of capacity ($13,000) by the number of clients (14). That works out to about $930 per client.
If the service is priced at $1500/month and each client costs the business about $930/client, then there’s a positive cash flow of about $570 per client per month. Now, granted that doesn’t sound like a ton of money! But… when we multiple that $570 per client by 14 clients, that’s a positive cash flow of $8000 per month.
That’s a solid amount of money to play with.
Take a moment to think about what you might invest in on an ongoing business to make your business stronger or to speed its growth with $8000 per month in free cash flow.
Advertising? Another team member? Coaching? Better software? Employee profit distribution? Charitable giving?
You can also look at this as a way to examine the 3 components of your cash flow and their variables. For instance, do you really want to work with 14 clients at a time? Maybe not. Maybe you adjust that variable down to 8 and then adjust capacity and price to stay within your financial goals.
Do you really want to manage a team? Maybe not. Maybe you realize that when one of your team members lets you know they’ve accepted another job. So you scale back—and adjust your volume and pricing accordingly.
Is $1500/month the right price for your service? Maybe not. Maybe you can woo a different part of the market by raising or lowering the price. Again, you can adjust your volume and capacity accordingly.
Now that you can see how cash flow gives you options and broadens the scope of your opportunity, let’s turn back to what other impacts prioritizing cash flow can have in your business—because they’re not all financial.
Cash flow is a feminist issue because it supports feminist values.
As I already mentioned, there are structural and institutional reasons that managing for cash flow is a feminist issue: lack of access to capital, necessary precarity, worker exploitation, etc…
But there is also a shift toward feminist and anti-colonialist values that can occur when you start thinking in terms of cash flow rather than profit and loss.
First, you can better see the value of maintenance work in your business.
It pays to take care of yourself, your team, your products, and your customers because investing in maintenance keeps the money flowing. Instead of always coming out with something new to goose revenue, you can build the structures that make it easier to keep generating positive cash flow from the same offer.
Once I started thinking in cash flow, I could see how hiring others to literally take care of my customers and our offers was invaluable—and also affordable. I started to see how letting things evolve and improve over time instead of always trying to launch something new was more sustainable for both me and the business.
That leads me to the second way managing for cash flow supports feminist & anti-colonialist values.
Building and managing for cash flow highlight how our businesses are interconnected.
Instead of being separate, they’re part of a larger system within our personal lives, our team members’ lives, our customers’ lives, the communities we’re part of, and even larger systems at play. We can start to see how the decisions we make about how we want to direct the flow of money impact more than just our P&L statement.
Looking at money two-dimensionally made it harder for me to see how investing in my customers as well as my team could benefit the vision & mission of the business. Investing in customers can look like putting a special emphasis on onboarding, reinforcing values, creating more humane policies, and upping our communication skills. When I shifted my focus toward those kinds of investments, I saw cash flow as the key to creating ripple effects every time we spent money.
Third, cash flow reinforces a mindset of abundance.
Not in a “high vibes only” kind of way but in the sense that there is enough for all of us if we’re not trying to squeeze every last penny out of our businesses or other people. If colonialist and capitalist systems encourage amassing and hoarding wealth, putting an emphasis on flow gives us a feminist way to approach managing money through the value of abundance for all.
For me, making the switch from being taxed as a sole proprietor to having the business be taxed as an S-Corp really facilitated this change. Running payroll every 2 weeks was a concrete way to see abundance in our cash flow—even when we weren’t meeting revenue targets.
Finally (for our purposes here—I could go on and on), when we prioritize cash flow we’re prioritizing sustainability.
Today, the “hero” businesses follow a model that is inherently unsustainable: get capital, furiously build product, amass users, get more capital, exit. Often “making money” is never even part of the equation. These businesses might not get to positive cash flow before their founders are made feverishly rich.
Of course, many of these businesses don’t make their founders rich. Their investors often lose big. Products (and the communities that form around them) wither and die.
Prioritizing cash flow—as well as taking measures like capacity into account—gives a business the best shot at financial*,* operational, and personal sustainability. When we’re thinking about cash flow, we’re looking at investing in capacity and balancing that with the factors that go into the volume we want to serve and the prices we need to charge. It’s sustainable by design—not luck.
Prioritizing Cash Flow
Maybe you were expecting a little more math in an episode about cash flow. Maybe you were expecting more talk about profit, expenses, and investments. Money is about so much more than math though.
It’s a privilege to be able to focus on just the numbers—and I’d argue that it’s not healthy for a business to manage itself according to its P&L only. For those of us who are disrupting bigger business and cultural systems, whether by choice or by circumstance, there is more to think about than revenue and expenses.
Financial reports are just one way to represent the system of how money flows through your business. It’s a limited representation and often steers us toward status quo decision-making instead of creative problem-solving.
I’m not anti-math. Far from it! I love looking at the numbers as a way to clarify my thinking and provide some objective measure of what’s going on. But I strive to do so within a container that also takes maintenance, interconnectedness, abundance, and sustainability into account.
I want to use math as a way to take care of people and myself—not only a tool for maximizing profit.
If you’ve been struggling with money in your business—no matter how much revenue you’re bringing in, try a systems approach. Think cash flow. Map out the factors that influence your business’s volume, capacity, and price so that you can spot the opportunities you have to increase the flow—and help your business grow.