by
Philip Campbell, CPA
Copyright
2004, Philip Campbell - All Rights Reserved
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.
One thing I want to help you to see is that a cash flow
problem can almost always be seen far in advance - far enough in
advance to do something about it.
It is a myth (I’m trying to put this as politely as
possible) to think that cash flow problems “just happen”.
Rarely is a cash flow problem a sudden event.
It is almost always something that accumulates over a period of
time.
And it is not difficult to see it coming.
Joe Frazier, the famous boxer, said this: “The
punch that knocks you out is the one you didn’t see”.
What Joe Frazier was saying is that in boxing, if you
see the punch coming, you have a chance to react.
You have a chance to get out of the way. You have a chance to at least “roll with the punch”.
It’s when you don’t see the punch coming that you
get knocked out.
In business, if you don’t see a cash flow problem
coming, then you don’t see it until the problem has arrived on your
doorstep.
Most people don’t have a good view into what their
cash balance is going to be so the problem smacks them on the side of the
head without warning.
That’s how businesses are ruined.
Even
if you believe you will have a cash shortage in the future, you still must
see it - in advance. You must
see it clearly for what it is, how much it might be, and precisely when it
is likely to happen.
Then
you can plan in advance exactly what you need to do to head off the
punch before it lands on the side of your head.
You
can't have the punch show up at the last minute, when you didn't see it
coming. This kind of surprise
blow will knock you out. It could be the kind of blow that ruins your business.
The All-Important Cash Flow Question
The most important single step you can take to head off a possible cash
flow surprise is to ask and answer this very simple question:
What do I expect my cash balance to be six months
from now?
Answering this question will force you to “focus
forward”. It will force you to look at your business in a new and
revealing way.
It will pull you out of the past and into the future.
The key to answering this question is having a
monthly cash flow projection for your business for at least the next
six months. A schedule that
shows your projected revenues and expenses in the context of your beginning
and ending cash balance for each month.
I can’t stress enough how critical this is to
really taking control of your business… and your cash flow. It’s
hard to overstate just how important this is to everything you do in your
business.
Your Financial Statements Are Not the Answer
A cash flow projection is very different than the basic financial
statements you use to manage your business each month.
The standard financial statements that all
businesses use are not adequate for answering this question. Financial
statements are always historical, meaning they’re always presenting what
happened in the past.
They are a bit like the rear view mirror in your
automobile. The rear view
mirror is very helpful when you need to see what is behind you. However, when you are driving down the highway, your focus
needs to be on what’s in front of you.
An occasional glance in the rear view mirror is all
that’s required.
You have to have a good clear view of what’s
ahead of you in order to get where you are going safely.
Look in the rear view mirror for too long and you will soon be
crashing into something in front of you.
Cash flow projections provide the visibility you
need to avoid cash flow problems.
Creating Peace of Mind
Remember, cash flow problems don’t “just happen”.
They can almost always be seen long before they ever
happen. Your job is to know
what you expect the cash balance to be six months from now. That way you’re
in control of your business and your cash flow.
Use cash flow projections to make sure a cash flow
problem never catches you by surprise. They will provide you the peace
of mind that comes from knowing you have your cash flow under
control.
You CANNOT run your business successfully
without them.
If you would like to learn more about creating cash flow
projections, you can get a FREE
Special Report "The Secret to Understanding, Managing, and
Projecting Your Cash Flow" Click
Here.
This Special Report
is FREE for a limited time.
Learn the secret to regaining
control of the financial side of your business. Get
your FREE Special Report NOW.
About Philip Campbell
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?
Click
Here to learn more.
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