Balance Sheet Secrets: 3 Quick Moves to Boost Cash Flow by 10%-30%

Most business owners barely glance at their balance sheet. That’s a mistake! Your balance sheet holds the key to improving cash flow by 10%-30%. Let’s break down how.

I get it:

❌ It feels complicated
❌ It's not the main thing you enjoy
❌ There are other things to focus on

But understanding it is crucial for making smarter business decisions. So, here are 3 quick things you need to know to start using your balance sheet to unlock cash flow.

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1. Balance Sheet Accuracy

We all know the basics: Assets = Liabilities + Equity. But here’s the catch—if your data is off, your decisions will be too.

💡PRO TIP: Hire a pro bookkeeper. They’ll make sure your assets and liabilities (including loans) are entered correctly. This also helps clarify the equity section, showing whether you’re well-capitalized or need more cash.

Hint: A negative equity number tells you how much money your business needs for smoother cash flow (a.k.a. less stress).

Example: For a $1M revenue company with $200K negative equity, you’ll need at least $200K to stabilize things. Options? A cash injection from the owner, investors, or a bank loan.

🔓Key takeaway: Accurate, up-to-date balance sheet data can lead to a 10%-30% cash flow improvement because you know exactly where your money is!

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2. Working Capital Management: It’s More Than Just Dollar Signs

Let’s move past just looking at dollars—start paying attention to percentages and key ratios.

A). Current Ratio: This is your company’s Business BMI. It’s your current assets divided by your current liabilities, and it shows your ability to cover short-term obligations.

💡 Aim for a ratio of 1.25:1 or higher!

💰Cash Flow Impact: Managing accounts receivable, inventory, and accounts payable efficiently will boost your cash flow. For example, reducing the time it takes to collect from customers means more cash in hand for growth.

✅ PRO TIP: Cut 5 days off your A/R collection cycle, and watch your cash flow increase. (Need help with this? Just ask!)

🔓Hint: Your minimum working capital should be 10% of your annual revenue. For a $5M company, that’s $500K in working capital. (Note: I purposely excluded inventory—ask me why!)

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3. Owner’s Equity & Financial Leverage

Understanding owner’s equity is crucial. It represents your residual interest in the business after all liabilities are covered. Watching how your equity changes over time reveals a lot about your profitability.

On the flip side, Financial Leverage (your debt-to-equity ratio) can tell you if you’re taking on too much debt. Leverage helps with growth, but too much can create financial risk.

💡PRO TIP: Measure your Debt-to-Equity Ratio. Every industry varies, but a good rule is $1 of equity for every $3 of debt (3:1). Lower is better here.

Example: If your business has $100K in equity, your debt shouldn’t exceed $300K. Exception: Commercial mortgages can be kept off the balance sheet in a separate entity.

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Knowing Your Numbers = Healthier Finances

By mastering these balance sheet basics, you’ll make smarter decisions, identify opportunities for improvement, and boost your overall financial health. Regular reviews of your balance sheet will keep you on track for long-term success. 💯

Wishing you a great week ahead!

Patrick Shurney, MBA
Founder, 3P Consulting
📞 443.539.6276
🌐 www.3pcllc.com

P.S. I’ve just updated my website with fresh resources and tools to help you take control of your business finances. Head over to [3P Consulting] to explore the new features and see how they can help accelerate your profit!

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About Me:

As a veteran in financial coaching with over 30 years of corporate banking experience, my mission is to empower small business owners like you to become numbers confident, optimize cash flow, leverage debt, and pay yourself competitively.

Ready for More?

Here’s how I can help you:

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Ready to take your financial strategy to the next level? Let’s connect and make sure you’re running a thriving business while paying yourself what you’re worth.