Philip Campbell's Blog

Setting Financial Improvement Goals and Targets

I am a big believer in the power of goals.

For me, as a young CPA back in the 1980s, goals became the tool I used to grow and succeed in my career. I believed that I could use goals to ensure that my trajectory as a young business professional was toward becoming better and better at my craft.

Goals helped steer my career upward and onward so that as each year went by, I felt confident that I was increasing my ability to add value in the business world.

Setting Financial Goals in Business

Goals are also powerful when you use them to focus on the financial results that matter in your business. That’s why setting specific financial goals and targets is Step 1 in the Monthly Financial Rhythm of business.

Here is a link to a post I wrote on my Financial Rhythm website that provides the rationale behind the power of goals.

And it shows you specific examples, as well as showing you how to bring the power of goals to improving your profitability and cash flow this year.

 

NOTE: You can grab a copy of my newest book at Amazon.

A Quick Start Guide to Financial Forecasting: Discover the Secret to Driving Growth, Profitability, and Cash Flow Higher provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better business decisions. Get the book at Amazon.

Learning from Warren Buffett’s “Economic Moat” Analogy in Business

Warren Buffett popularized the term “moat”, or “economic moat”, as a way of describing an advantage, or protection, a business has over its competitors.

He believes that the size of the “moat around a business” tells a lot about how viable the business will be as time goes by.

Here is how Buffett describes a moat:

“If you have a castle in capitalism, people are going to try to capture it. You need two things – a moat around the castle, and you need a knight in the castle who is trying to widen the moat around the castle.

There are some businesses that have very large moats around them and they have crocodiles and sharks and piranhas swimming around them. Those are the kinds of businesses you want.”

I love the moat analogy. It provides a symbol for the work you have done to make it difficult for the enemy to come after your customers and your profits.

If you look at your business as an “economic castle”, then you have an obligation and a duty to protect it from those who might do harm to it.

I believe the concept of an “economic moat” is something we should all think about regardless of the size of our business. Here are three areas or questions to think through:

1. Do we have a moat around our business?
2. How can we widen our moat?
3. Is our moat helping us create Happy Owners (by generating above average profits and cash flow)?

Here is a post at my Financial Rhythm website where I walk through each of these questions in more detail.

And I talk about the underlying reason that Warren Buffett is so fond of creating an “economic moat” in business.

Hint. It has something to do with the beauty of generating excess cash for the owners of the business. 😊

 

NOTE: You can grab a copy of my newest book at Amazon.

A Quick Start Guide to Financial Forecasting: Discover the Secret to Driving Growth, Profitability, and Cash Flow Higher provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better business decisions. Get the book at Amazon.

Your Personal Guarantees Are Adding Up

Most entrepreneurs and business owners rarely consider how much they have personally guaranteed.

And they are shocked at the total dollar amount they are personally responsible for (despite doing business as a corporation or LLC).

One reason the number is so surprising, and so big, is because the guarantees have occurred over a number of years as the business has grown.

You finance some new equipment and the loan requires you to sign a personal guarantee. You sign a new lease or renew an agreement with an important supplier and a personal guarantee is part of the deal.

Over time, as your business grows, the number and amount of obligations you’ve guaranteed goes up. But as you grow your business and become more successful, it’s wise to think more strategically and thoughtfully about how you handle your personal guarantees.

Here is a link to a form to help you list and quantify your existing personal guarantees.

Now is a great time to quantify the dollar amount of your personal guarantees. Then begin reducing them.

 

NOTE: You can grab a copy of my newest book at Amazon.

A Quick Start Guide to Financial Forecasting: Discover the Secret to Driving Growth, Profitability, and Cash Flow Higher provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better business decisions. Get the book at Amazon.

Where is Your Business Going?

One thing is true in life and in business - time is going to pass.

Your business is going to generate financial results of some sort or another as each month goes by. The future is going to become the present… very soon.

The big question, when it comes to shaping the future of your business, is “Where do you want your business to go?”

And what does financial success in business look like in your mind when you think about where you want to take your business?

Alice in Wonderland

“Would you tell me, please, which way I ought to go from here?” said Alice.

“That depends a good deal on where you want to go,” said the Cheshire Cat.

“I don't much care where,” said Alice.

“Then it doesn't matter which way you go,” said the Cheshire Cat.

That is a short section from Alice’s encounter with the Cheshire Cat in Alice in Wonderland.

To me, that scene from Alice in Wonderland is a fantastic reminder that defining “where you are going” is very important in business and in life. It’s hard to get where you are going if you don’t know where you are going.

Goal Setting to the Now

Gary Keller and Jay Papasan wrote a fantastic book, The ONE Thing: The Surprisingly Simple Truth Behind Extraordinary Results.

One of the concepts they talk about in the book is the power of Goal Setting to the Now. This involves setting big goals for the future. (This is about answering the “where are we going” question.)

Then thinking small by drilling down to what you should be doing right now to create progress toward your big goal. (This is about the steps we can take right now to begin and continue the “journey.”)

Here is a link to a post where I share their very insightful approach to thinking big… but going small.

 

NOTE: You can grab a copy of my newest book at Amazon.

A Quick Start Guide to Financial Forecasting: Discover the Secret to Driving Growth, Profitability, and Cash Flow Higher provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better business decisions. Get the book at Amazon.

A Fast Way to Get on Top of Your Cash Flow

The Cash Flow Focus Report is a simple, common sense tool for understanding your cash flow that only takes 10 minutes a month to complete.

It’s a big picture tool I use to understand the drivers of cash flow and put my finger on the pulse of a company’s cash flow.

It is designed to help you articulate the “2-Minute Conversation.” This is a short conversation where you demonstrate to yourself (and others) that you are on top of the cash flow of your business. (Because cash is the real bottom line in business.)

The 2-Minute Conversation in Action

One way to look at the 2-Minute Conversation is to imagine that you are about to sit down with your banker, or your business partner, or an investor (maybe even your spouse).

You have 2-minutes to briefly explain to them your financial results for the month. Not the nitty-gritty-greasy-grimy details. Just a short, big picture discussion about the company’s cash flow that enlightens the people you are talking to.

The goal of the 2-Minute Conversation is to provide them that understanding… while also demonstrating to them that you know what’s going on in your business. (Imagine their horror if they discovered that you, the person running the business, didn’t know what’s going on with your own cash flow!)

How I Use the Cash Flow Focus Report

If I work in the business, or I'm a shareholder or on the Board, I create the focus report every single month.

If I am looking at making an investment in a company (public or private), I create the focus report for the most recent year. It is a super-fast way for me to find out if I am interested in the company.

I recently looked at an intriguing small (publicly held) company and wanted to share with you the Cash Flow Focus Report I created (and show you how I created it). The company is Scott’s Liquid Gold, Inc.

Scott’s Liquid Gold, Inc.

Here is a brief recap of the history of the company from their website.

“Ida Goldstein, a widow with three sons bought the formula for Scott’s Liquid Gold for $350 in 1951. Her oldest son, Jerry, took the lead with the family business. For the next 49 years, he went on to build a trusted brand and thriving business. Jerry’s son, Mark, began working with his father after graduating from Syracuse University in 1978. Jerry and Mark worked together for the next 22 years until Jerry’s death in 2000. Today, Mark continues at the helm as President and CEO.”

The company develops, manufactures, markets and sells household and skin and hair care products. The Company operates through two segments: household products and skin and hair care products.

Their primary brands are Scott’s Liquid Gold, Alpha Skin Care, Prell, and Denorex. They also act as the exclusive distributor of products in certain markets. These products include 7th Heaven by Montagne Jeunesse and Batiste Dry Shampoo.

27% of their sales are to Walmart. 24% of their sales are to Ulta. (That’s a pretty heavy concentration with two retailers.)

Here is a link to the Cash Flow Focus Report I created for Scott’s Liquid Gold, the resulting 2-Minute Conversation, and the step-by-step process I used to quickly home in on, and understand, the cash flow of their business.

It is a great example that shows how fast you can get on top of (and understand) the cash flow of a business.

 

NOTE: You can grab a copy of my newest book at Amazon.

A Quick Start Guide to Financial Forecasting: Discover the Secret to Driving Growth, Profitability, and Cash Flow Higher provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better business decisions. Get the book at Amazon.

Creating a Beautiful Financial Rhythm in Your Business

Some words just seem odd next to each other.

• Found missing
• Same difference
• Reality television
• Long shorts
• Silent alarm
• Adult male 🙂

Each word just looks a little funny next to its opposite.

Here are some words that are not only odd when put next to each other, they are scary.

• Financial chaos
• Financial confusion
• Financial disarray
• Financial sloppiness

I Love the Words "Financial Rhythm"

For me, the words financial rhythm captures the essence of what financial management in business is all about.

As a seasoned CFO, the words financial rhythm paints a beautiful picture in my mind of what driving profitability, cash flow and wealth is all about in a business. A business with a well-orchestrated financial rhythm in place is a business that makes good money and rewards its owners financially.

Profits and cash flow are strong. Value is being created. Music is being made. Wealth is being created.

There is a pulse, a flow, a cadence at work in the business that produces beautiful financial results.

The opposite is a business that struggles financially. A business whose finances are disorganized and chaotic. The music it plays sounds more like the scratching of fingernails across a chalk board. There is Financial Chaos at work rather than a natural, healthy financial rhythm.

Take a minute to consider whether the Financial Rhythm in your business is producing financial happiness or financial chaos.

Maybe now is the perfect time to implement an effective Financial Rhythm in your business.

 

NOTE: You can grab a copy of my newest book at Amazon.

A Quick Start Guide to Financial Forecasting: Discover the Secret to Driving Growth, Profitability, and Cash Flow Higher provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better business decisions. Get the book at Amazon.

I’m Profitable… But Cash is Tight

I routinely hear from business owners that say, “My business is profitable… but for some reason cash is always tight.”

They feel like they have a “cash flow leak” somewhere in their business. But they are unsure where the leak is. Or why it is happening. Or how to fix it.

With no real answers or solutions to their problem, their tendency is to “punt” on understanding what's going on with the cash, and just hope that the cash flow will eventually take care of itself.

Here’s What’s Causing the Problem

There are four reasons cash flow is so confusing (and a bit convoluted). The two biggest culprits are:

Profit (or loss) is not cash flow – this is the single biggest source of confusion.

An increase in cash is not always good… and a decrease in cash is not always bad. If cash was up for the month because you were forced to borrow money on your bank line (to fund losses) even though your plan was to pay the bank line down that month, that would be a bad thing. On the other hand, if cash was down because you decided to pay your debt down quickly, that would be a good thing because you are on plan to use the excess cash generated in your business to reduce overall debt.

I talk more about each reason here.

 

NOTE: You can grab a copy of my newest book at Amazon.

A Quick Start Guide to Financial Forecasting: Discover the Secret to Driving Growth, Profitability, and Cash Flow Higher provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better business decisions. Get the book at Amazon.