What’s your magic cash flow number?

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What’s your magic cash flow number?

Do you know what the magic cash flow number is for your small business? The magic cash flow number is the minimum number you need to reach in sales to keep operating your business. You can calculate this weekly, fortnightly, monthly or quarterly, depending on the nature of your business.

As someone responsible for the finances at a small business, and as someone who is dedicated to providing financial assistance to others, I spend a lot of my time thinking about and calculating magic cash flow numbers. Knowing your number gives you the clarity to make informed business choices. Not knowing it is often the first step towards your operations going pear-shaped.

How to find the magic number

To calculate your magic number you need to consider all your given costs. Amongst other things, this may include:

  • Payroll
  • Tax
  • Rent
  • Loan repayments
  • Utility bills
  • Insurance

By adding these figures together, you’ll reach a minimum amount of revenue you need to be making to meet your given costs and break even.

Using your magic number

Once you have your magic number, it’s time to put it to use. Firstly, examine how this number relates to the volume of sales for your business. What quantity of your products and services must you sell to reach your magic number? With this information you can then examine how sustainable your business is by looking at your past performance and the likelihood of achieving your magic number time after time.

If you’re achieving your magic number with some left to spare, you’ll be able to evaluate whether you can afford to make investments in the growth of your business. With extra revenue you may be able to hire a new employee, update your equipment or introduce new systems to improve productivity.

Alternatively, you may use your magic number to calculate whether you can afford to take time out for yourself. As a business owner you’re likely in the habit of investing your time into your business, family and other external needs, whilst forgetting to take out time for yourself. Without occasionally taking time out for yourself you can end up not doing anything to the best of your ability. You need time to refresh so you can be the best business leader possible for your employees and customers.

Using Reep, you can easily calculate your magic number and use our forecasting tool to model the feasibility of investments in growth. You can even plan for your absence, and ensure the business continues to tick along successfully without you. To try it out for yourself, sign up for the Reep free trial today.