Most of us have probably driven an automobile on a foggy night with low visibility. There is really not much you can do but slow down. But that is not an option when you are flying an airplane. You are dependent on your instrument panel to tell you what is happening. This is certainly no time to “fly by the seat of your pants”. You need to know critical numbers like air speed and elevation. Your system is telling you your position and helping guide you to a safe arrival at your destination.
Today I want to focus on Financial Mastery. As a business owner, you’ve probably “felt the fog” while “flying the plane” of your small business. You need to be watching your instrument panel to successfully navigate the challenges. The instrument panel of business is financial reporting. I can already hear the groans from some of you. The fact is that financials can be FUN! It really is a great feeling to know what is going on, and be planning your activities based on great feedback. DENIAL is not bliss. NO KNOWING is why many small businesses struggle and often fail. They run out of money.
So let’s take a brief look at the most important issue in financial mastery – cashflow. The foundational tool to manage cashflow is a cashflow budget. Simply put, a cashflow budget is a tool to plan and track your cash coming into the business, and leaving the business. Cash is the fuel for the business. For us to continue to fly, we must always have fuel in the tank and flowing to the engine. A cashflow budget is a weekly or monthly summary and projection of money coming in and money going out. It is important to understand that cash is NOT profit. I have spoken to many business owners that are confused because their P&L statement shows a profit, but they have no cash. For example, not only must you sell, but you must collect the money. Also, if you have periods of time where your business is not profitable (e.g. a seasonal business), then you need to have other sources of cash available (e.g. savings, lines of credit) so that you don’t run out of gas. All of these issues are displayed in your cashflow budget. It is the fuel gauge for your business.
Now is the time to make sure that you have a working fuel gauge. We would love to help you get a good cashflow budget in place for your business. Next week we’ll take a look at another key financial mastery tool – breakeven. This one helps you determine the profitability of your business and helps you understand what the business must produce to provide what you want.
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