by
Philip Campbell, CPA
Copyright
2004, Philip Campbell - All Rights Reserved
The single biggest reason the small business
failure rates are so incredibly high today is this one simple fact: Most
business owners don’t really know what’s going on with their most
precious asset – their CASH.
Despite the fact that cash is the lifeblood of the
business, the fuel that keeps the engine running, most business owners
truly don’t have a handle on the flow of cash into their business and
the flow of cash out of their business.
The reason this problem is so widespread today is
that each of us has been taught that managing the financial side of
our business means having financial statements.
We have all been taught that financial statements
show us the complete view of the financial side of our business.
Well, the truth is they don’t.
Recognize the
Limitation of Financial Statements
There is no doubt the basic financial statements that every business must
prepare are very useful; in fact they are a must.
Banks
require you to provide them. Investors require you to provide them. They
are the common language of business. You cannot succeed in business
without them.
At
the same time, if you have no other tool for understanding and managing
the cash flow of your business other than the basic financial statements, you will always feel out of control.
You will be flirting with disaster because you will be neglecting
the lifeblood of your business – your cash.
The
accounting rules that govern the creation of financial statements are not
about tracking the actual flow of cash through your business. They are
focused on measuring profit or loss – not cash flow.
That’s
why a profit in your financial statements does not necessarily mean you
created any cash.
By the same token, a loss in your financial
statements does not necessarily mean you lost any cash.
I worked with a company recently that routinely
reported an annual loss in their income statement of about $1,000,000. The
beauty of that business was that it actually generated over $800,000 in
positive cash flow.
The rules of accounting required an investment made
years before to be amortized (expensed over time) in the income statement.
The result was a big non-cash expense in the income statement every year
that created a net loss.
But cash flow was unaffected. The cash continued to
roll in despite the fact that the rules of accounting required this
expense to be included in the income statement.
And the opposite scenario is also true.
The business headlines of the last three years
have been filled with companies that showed incredible profits in their
income statement. But their cash flow was a very different story.
They ended up in bankruptcy because they actually had
a negative cash flow. They used more cash than they generated despite the
profit shown in their financial statements.
Take Control of Your Most Precious Asset
The solution to this problem is to have a schedule of your actual
and projected revenues and expenses in the context of your beginning
and ending cash balances. Each
month should be presented next to each other so the actual cash balances
for previous months are shown next to the expected cash balances for the
coming months.
A schedule like this presents the cash flow of your
business in a way that makes it crystal clear where your money is going
and where you expect your cash balance to be six months from now.
This is the secret to understanding the cash flow
of your business.
If you would like to see an example of a schedule
like this (I call it the Peace of Mind schedule), you can get a FREE
Special Report "The Secret to Understanding, Managing, and
Projecting Your
Cash Flow".
Once
you realize you cannot look at your financial statements and see a clear
picture of your cash flow, you are on your way to a newfound
understanding of your most precious asset – your CASH.
Make a commitment to yourself now to take control
of the cash flow of your business.
You will be amazed at how much easier it is to manage
your business each day when you can see exactly what’s going on with
your cash flow.
It’s the single most important step you can take
to help make sure you never become another small business failure
statistic.
If you would like to learn more about taking control of
your cash flow, get this 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 - NOW.
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