Your small business thrives on sales and cash flow. You use cash to buy inventory, sell that inventory, and then receive payment from the customer that includes a profit — before the cycle starts all over again. But how much time occurs during this cycle? Do you have enough cash to cover expenses at any given time? There’s a way to track this cycle.
The cash-to-cash cycle is the time period between when a business pays a supplier for goods and when it receives payment for selling those goods. It’s a financial method you can use to measure your business’s turnover and efficiency. This information can also help you with creating a workable budget. By tracking the number of days it takes for your business to complete the lifespan of goods, you can understand where and when lags and bottlenecks happen.