In this podcast episode, we explore the fundamentals of cash flow management, a crucial concept for aspiring entrepreneurs who may have a different financial background. Danny breaks down the difference between revenue earned and revenue completed, shedding light on how these figures can impact your business finances. While revenue earned reflects the money collected within a given month, revenue completed represents the value of work completed during that period. Understanding this distinction is vital, as it reminds us that we haven't yet fully earned the amount reflected in our revenue completed.
To ensure financial stability, Danny advises maintaining a conservative approach to cash flow. They recommend setting aside 3-6 months' worth of cash as a safety net, cautioning against paying yourself too much until this cushion is established. Having cash on hand serves several purposes, including covering refunds, weathering seasonal downturns, and adapting to unforeseen events like the recent COVID-19 pandemic.
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