Most people wait for a cash crisis before they get focused on understanding their cash flow. It's just human nature.
I was fortunate that I ran into a cash crisis very early in my career. Learning the hard way works best when you get to do it and still have plenty of time to implement the lessons you learned!
In my case, I joined a nice little company doing about $10 million in revenue each year as the Chief Financial Officer (CFO). We had just bought the company and borrowed most of the money to buy it. Well, after about 3 months I realized our nice little company had one REALLY BIG cash flow problem.
And by cash flow problem I mean we couldn't pay our bills on time.
Vendors were raising hell wanting their invoices paid. They were calling me, and everyone else in the company, demanding their money and threatening legal action if we didn't pay. The bank was banging on our door demanding to know how we were going to make the payments on the money we had borrowed.
I was sweating bullets every two weeks trying to make payroll. Worrying about what would happen if we missed the payroll. How would I explain THAT?
Is This Cash Flow Problem About to Get Worse?
And I'll never forget the nagging question that would wake me up in the middle of the night. That question was – Is this problem going to get worse? Are we going to make it through this cash flow crunch or are we going to lose everything?
I had financial statements. I had budgets. I was a CPA after all.
But I still couldn't figure out exactly what was going on with our cash flow. And I wasn't doing a good job communicating with the CEO or the bank about what was going on with the cash either. Finally the bank got fed up and threatened to shut down the business if we didn't present them with a cash flow plan they could trust and agree to.
And that turned out to be the whack on the side of the head that I needed in order to figure out a solution. You know, sometimes in business, or in life for that matter, you need a good strong whack on the side of the head to wake you up and get you going. And that was the whack I needed.
(Side note: The book A Whack on the Side of the Head is a great book on creativity. I read it years back and even had the opportunity to hear the author, Roger von Oech, do a presentation on creativity. I used an image of the book in this post because it ties in nicely with the whack we all need from time to time to get us more focused on understanding our cash flow.)
Simplification Was the Secret
To make a long story short, we got the relief we needed from the bank.
What I created during that time is a schedule I call the "Peace of Mind Schedule." This is the tool that saved me, and saved our business. I knew the schedule was a winner when the vice president of the bank said to me, "Philip, this schedule is PERFECT. I can tell exactly what's going on with the cash. It makes PERFECT sense to me."
The Peace of Mind Schedule presented the cash flow of the company in a way that made it clear to them where our money was going and how long it would take us to pay the loan off.
And we got what we wanted from them as a result.
That gave us the breathing room we needed to work through the cash flow crunch. And I'm happy to report we went on to make a lot of money from that business and ended up selling it some years later for a VERY nice multiple of cash flow.
The Lesson I Learned
One of the lessons for me was that when you put insightful and simple information in front of smart people they make wise decisions. Before we showed the lender the different drivers of our cash flow in a simplified format they were confused and frustrated… and ready to pull the plug on the company.
After they saw a common sense view of our cash flow they calmed down and gave us the room we needed to turn things around. We made a lot of money because of that decision!
In my new online course I show you how to understand your cash flow in less than 10 minutes a month. And l teach you how to explain what happened to your cash last month to your business partner or CEO (maybe even your spouse) in a 2-minute conversation.
Wouldn't it be wise to know what happened to your cash last month? Less than 10 minutes a month is all it takes. I provide a 100% money back guarantee to prove it to you. You love my new online course… or I eat the cost.
to get my blog posts delivered right to your email inbox. I publish one new post each week. Click here