Are you feeling good about how you manage the cash flow of your business? Can you explain what happened to the cash at the end of each month?
I did a survey of business owners when I wrote the book Never Run Out of Cash: The 10 Cash Flow Rules You Can’t Afford to Ignore. I knew from my work as a CFO and as a consultant to business owners that few people are really on top of their cash flow.
The first question was: Do you feel like you have the cash flow of your business under control?
82 % said No.
That’s a big problem when you consider that pretty much everyone in business knows that Cash Is King! That cash is the lifeblood of the business.
So why is it that such a huge percentage of people understand how important cash is but 82% say they don’t feel like they have their cash flow under control?
The next question I asked was: Do you know what your cash balance is expected to be six months from now?
79% said No.
That means that as you are faced with important financial questions each day like:
- Should I buy or lease the new equipment I need?
- Can I repay the debt I have on time?
- Can I add a new location without putting a strain on my finances?
- What’s the financial impact of implementing my growth plans for the business?
When you have questions like that, but no answers, then you are left to wonder and worry about what’s about to happen financially.
The Secret
If there is a secret to understanding and managing your cash flow, it lies in being able to answer the second question. When you don’t know what you expect your cash balance to be over at least the next six months, then your cash flow will always be a mystery to you. And you will always be uncomfortable understanding and managing your cash flow.
As I said in the book, it really is absolutely impossible to manage your business intelligently if you don’t have cash flow projections.
Do you know what your cash balance is likely to be six months from now?
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