Financial Facts for Running Your Business
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Understanding Your
Cash Flow
by Philip Campbell, CPA
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How to Master the Financial Side of Your Business
by Philip Campbell, CPA
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Do You Treat The Dishes Better Than Your Cash Flow?
by Philip Campbell, CPA
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The 10 Cash Flow Rules You Can't Afford to Ignore
by Philip Campbell, CPA
Understanding Your
Cash Flow
by Philip Campbell, CPA
Copyright 2004, Philip Campbell - All Rights Reserved
The single biggest reason the small business failure rates are so incredibly high today is this one simple fact: Most business owners don’t really know what’s going on with their most precious asset – their CASH.
Despite the fact that cash is the lifeblood of the business, the fuel that keeps the engine running, most business owners truly don’t have a handle on the flow of cash into their business and the flow of cash out of their business.
The reason this problem is so widespread today is that each of us has been taught that managing the financial side of our business means having financial statements.
We have all been taught that financial statements show us the complete view of the financial side of our business.
Well, the truth is they don’t.
Recognize the Limitation of Financial Statements
There is no doubt the basic financial statements that every business must prepare are very useful; in fact they are a must.
Banks require you to provide them. Investors require you to provide them. They are the common language of business. You cannot succeed in business without them.
At the same time, if you have no other tool for understanding and managing the cash flow of your business other than the basic financial statements, you will always feel out of control. You will be flirting with disaster because you will be neglecting the lifeblood of your business – your cash.
The accounting rules that govern the creation of financial statements are not about tracking the actual flow of cash through your business. They are focused on measuring profit or loss – not cash flow.
That’s why a profit in your financial statements does not necessarily mean you created any cash.
By the same token, a loss in your financial statements does not necessarily mean you lost any cash.
I worked with a company recently that routinely reported an annual loss in their income statement of about $1,000,000. The beauty of that business was that it actually generated over $800,000 in positive cash flow.
The rules of accounting required an investment made years before to be amortized (expensed over time) in the income statement. The result was a big non-cash expense in the income statement every year that created a net loss.
But cash flow was unaffected. The cash continued to roll in despite the fact that the rules of accounting required this expense to be included in the income statement.
And the opposite scenario is also true.
The business headlines of the last three years have been filled with companies that showed incredible profits in their income statement. But their cash flow was a very different story.
They ended up in bankruptcy because they actually had a negative cash flow. They used more cash than they generated despite the profit shown in their financial statements.
Take Control of Your Most Precious Asset
The solution to this problem is to have a schedule of your actual and projected revenues and expenses in the context of your beginning and ending cash balances. Each month should be presented next to each other so the actual cash balances for previous months are shown next to the expected cash balances for the coming months.
A schedule like this presents the cash flow of your business in a way that makes it crystal clear where your money is going and where you expect your cash balance to be six months from now.
This is the secret to understanding the cash flow of your business.
If you would like to see an example of a schedule like this (I call it the Peace of Mind schedule), you can get a FREE Special Report "The Secret to Understanding, Managing, and Projecting Your Cash Flow".
Once you realize you cannot look at your financial statements and see a clear picture of your cash flow, you are on your way to a newfound understanding of your most precious asset – your CASH.
Make a commitment to yourself now to take control of the cash flow of your business.
You will be amazed at how much easier it is to manage your business each day when you can see exactly what’s going on with your cash flow.
It’s the single most important step you can take to help make sure you never become another small business failure statistic.
If you would like to learn more about taking control of your cash flow, get this FREE Special Report "The Secret to Understanding, Managing, and Projecting Your Cash Flow"
Click here for free report
This Special Report is FREE for a limited time.
Philip Campbell is a CPA, and the author of the book
“NEVER RUN OUT OF CASH, The 10 Cash Flow Rules You Can't Afford to Ignore”. Philip has helped hundreds of business owners take control of their cash flow. He shows you how to eliminate your cash flow worries and take control of your business. Is your cash flow under control? Visit his website: http://www.growandsucceed.com
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How to Master the Financial Side of Your Business
by Philip Campbell, CPA
Copyright 2003, Philip Campbell - All Rights Reserved
I conducted a survey recently to determine the degree to
which small business owners have their cash flow under
control.
The survey results showed that only 20% of business owners
feel like they have the cash flow of their business under
control. That means 8 out of every 10 business owners are
trying to manage their business without having the financial
side of their business under control.
That's a recipe for disaster!
It's like riding along on the freeway in a driving rainstorm
and you discover that your windshield wipers won't work.
You can't see the cars in front of you or behind you. You
slow down to a crawl. You're just hoping and praying the
rain stops before you end up in a terrible accident.
In business, you need a clear view into the financial impact
of your business decisions so that you put the odds of
success in your favor. You have to take control of this
part of your business... or it will take control of you.
The Small Business Financial Dilemma
The results of the survey highlight what I call The Small
Business Financial Dilemma.
It works like this.
As a small business owner you wear lots of hats. You are in
charge of Marketing, Operations, Customer Service,
Accounting, Finance, Administration, Human Resources and
everything else that must be done to run a successful
business.
After a while, some of the work that needs to be done is put
off. Often times it's the accounting and financial component of the business that is sacrificed.
A little time passes and you begin to notice you don't really know what's going on with the cash balance. You may be looking at financial statements, but you are confused about what they are telling you about what's going on with your cash balance.
The Resulting Dilemma
Running a small business means you are always making
financial decisions and financial commitments. You are
making those financial commitments each day and in the back
of your mind you are asking yourself these questions:
"Can I really meet these financial commitments I'm making?"
"Am I going to have enough cash to run my business
properly?"
Slowly but surely, worry and uncertainty about your cash
begins to drag you down. You find yourself spending more
and more of your time fighting cash flow fires rather than
growing your business and taking care of customers.
The Solution to the Problem
The secret to taking control of your cash flow is to ask
yourself two simple questions.
- What is my cash balance right now?
- What do I expect my cash balance to be six months from
now?
If you CAN'T answer these two questions, then strap yourself
in for a wild ride. You are on a roller coaster ride that's
about to become really frightening.
On the other hand, when you CAN answer these two questions,
you have just regained control of the financial side of your
business. You will experience the almost magical feeling of
control that comes from mastering this critical part of your
business.
You will feel like I did back in 1991 when I first discovered the secret to taking control of the cash flow of any business. I was amazed how simple the solution was and how it transformed the way I managed the business from that point forward.
Never Run Out of Cash
Remember, it's all about the cash. If the cash ever runs
out, then everything you worked so hard for goes right down
the toilet. That's why the financial side of business is so
crucial to your success.
Take the time to ask and answer the two critical cash flow
questions each month.
By taking control of your cash flow, you are putting the
odds of success in your favor. You are doing your part to
avoid becoming a small business failure statistic.
You are making sure you have the financial information you
need so you Never Run Out of Cash.
Philip Campbell is a CPA and the author of the book: “NEVER RUN OUT OF CASH, The 10 Cash Flow Rules You Can't Afford to Ignore”. Philip has helped hundreds of business owners take control of their cash flow. He shows you how to eliminate your cash flow worries and take control of your business. Is your cash flow under control? You can download his new Special Report "The Secret to Creating Cash Flow Projections You Can Trust" FREE Right Now. Visit his website: http://www.growandsucceed.com
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Do You Treat The Dishes Better Than Your Cash Flow?
by Philip Campbell, CPA
Copyright 2003, Philip Campbell - All Rights Reserved
Cash is the lifeblood of every business. Cash is what keeps your business alive. It is a very precious asset that must be treated with the care and attention it deserves.
Always remember, Cash Is King, because No Cash = No Business.
One of the cold, hard realities of business is that if you ever run out of cash, your business goes down the toilet. All your hard work goes right down the drain. Your dreams and desires for creating an exciting and profitable business come crashing down.
Stop and ask yourself this question – What is my cash balance right now?
If your answer is “I don’t know”, then you don’t have your cash flow under control. It means you are not “doing today’s work today.” You are not “doing the dishes” each day.
An Accurate Cash Balance is Critical
In business, you have to have good numbers. And the most important number of all is the cash balance.
Even the most intelligent and experienced person will fail if they are making business decisions using an inaccurate or incomplete cash balance.
Decisions that might otherwise be brilliant become deadly when they are made based on inaccurate data. If you go to the doctor and he makes an inaccurate diagnosis, the treatment he prescribes for you could be harmful – even fatal.
Doing the Dishes Every Day
The key to keeping an accurate cash balance in your accounting system is to do today’s work today. It’s “doing the dishes” every day.
The problems start when you, or the person you have in charge of your books, violate this rule. When entering cash receipts is put off and entering invoices is delayed.
The “Dishes” Test
If you’ve gotten in the habit of putting off the “non essential” accounting and “data entry” work, I’d like to suggest a little test.
Try this test for one full week and see what happens. Here’s the test:
Stop doing the dishes.
Allow them to stack up for a full week.
Save yourself the time and trouble of cleaning up after meals. After you enjoy a good meal, put the dishes in the sink or on the counter and get on to the other things you have to do. Move on to the other important things around the house.
Just think how much free time you will create for yourself.
Life is good, right?
Well, maybe not. After the first day or so, a couple thoughts start to run through your head. “I’m still going to have to do the dishes. When I do, there is going to be a huge stack and it’s going to take a long time. After a week, they are also going to be smelly and have old and hardened food all over them.”
You would be embarrassed when friends come over and see a dirty pile of dishes stacked up in your kitchen. Then after a week, isn't it a much, much harder chore?
Stop and ask yourself this question - do most people do the dishes every day because they just love doing the dishes?
Of course not. They do them each day because it’s one of those chores that is best done in bite-sized chunks.
Take Control of Your Cash Flow
Doing the dishes every day is the practice of doing today’s work today. You do it because the alternative approach is a really bad idea.
You need to put this same approach to work in your business.
Specifically, make sure your financial records are kept current each day. This will ensure you have an accurate cash balance.
Make the commitment NOW to take control of your cash balance. You owe it to yourself and to your business.
Remember, Cash Is King, because No Cash = No Business.
Philip Campbell is a CPA and the author of the book: “Never Run Out of Cash, The 10 Cash Flow Rules You Can't Afford to Ignore”. Philip has helped hundreds of small business owners take control of their cash flow. He shows you how to eliminate your cash flow worries and take control of your business. Is your cash flow under control? You can download his new Special Report "The Secret to Creating Cash Flow Projections You Can Trust" FREE Right Now. Click Here to get your copy NOW.Visit his website: http://www.growandsucceed.com
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The 10 Cash Flow Rules You Can't Afford to Ignore
by Philip Campbell, CPA
Copyright 2003, Philip Campbell - All Rights Reserved
The statistics on small business failure are alarming.
Michael Gerber, author of "The E-Myth: Why Most Small Businesses Don't Work and What To Do About It", says that 40% of businesses fail in their first year. 80% fail within their first five years.
THEY RAN OUT OF CASH.
Don't let this happen to you.
Here are 10 Rules to help you take control of your cash flow so you can create the business you have always dreamed of.
1. Never Run Out of Cash.
Running out of cash is the definition of failure in business. Make the commitment to do what it takes so it does not happen to you.
2. Cash Is King
It's important to recognize that cash is what keeps your business alive. Manage it with the care and attention it deserves. It's very unforgiving if you don't.
Remember, Cash Is King, because No Cash = No Business.
3. Know the Cash Balance Right Now.
What is your cash balance right now? It's absolutely critical that you know exactly what your cash balance is.
Even the most intelligent and experienced person will fail if they are making business decisions using inaccurate or incomplete cash balances. That's the reason why business failures are not limited to amateurs or people new to the business world.
4. Do Today's Work Today.
The key to keeping an accurate cash balance in your accounting system is to do today's work today. When you do this, you will have the numbers you need - when you need them.
5. Either You Do the Work or Have Someone Else Do It.
Here is a simple rule to follow to make sure you have an accurate cash balance on your books. You do the work or have someone else do it.
Those are the only two choices you have. The work must be done. It's like mowing the lawn. You can't just ignore it. Someone has to do it. That means either you do it or you have someone else do it.
6. Don't Manage From the Bank Balance.
The bank balance and the cash balance are two different animals. Rarely will the two ever be the same. Don't make the mistake of confusing them.
It's futile (and frustrating) to attempt to manage your cash flow using the bank balance. It's a prescription for failure. You reconcile your bank balance. You don't manage from it.
7. Know What You Expect the Cash Balance to be Six Months
From Now.
What do you expect your cash balance to be six months from now? This one question will transform the way you manage your business.
This question really gets to the heart of whether you are managing your business or whether your business is managing you.
8. Cash Flow Problems Don't "Just Happen".
You would be shocked and amazed at the number of businesses that fail because the owner did not see a cash flow problem in time to do something about it.
The key is to always be able to answer the question - what do I expect my cash balance to be six months from now?
9. You Absolutely, Positively Must Have Cash Flow
Projections.
Cash flow projections are the key to making wise and profitable business decisions. They give you the answer to the all-important question from Rule # 7.
It's impossible to run your business properly without them.
10. Eliminate Your Cash Flow Worries So You Are Free to Do
What You Do Best - Take Care of Customers and Make More
Money.
Use these 10 Rules to free yourself from cash flow worries. That way you can focus all your time and talents where you can make the most difference in your business.
No more wasted time worrying about what's going on with your cash flow. Instead, you can focus your unique talents and abilities each day on ways to grow your business and make more and more money each year.
And that's a recipe for success and wealth creation.
Philip Campbell is a CPA and the author of the book: “NEVER RUN OUT OF CASH, The 10 Cash Flow Rules You Can't Afford to Ignore”. Philip has helped hundreds of small business owners take control of their cash flow. He shows you how to eliminate your cash flow worries and take control of your small business. Is your cash flow under control? You can download his new Special Report "The Secret to Creating Cash Flow Projections You Can Trust" FREE Right Now. Click Here to get your copy NOW. Visit his website: http://www.growandsucceed.com
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