Audio podcast: Running your business without a cash flow forecast is like driving a car wearing a blindfold

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Chris Bjorklund: Hello, I’m Chris Bjorklund for the Business Resource Center. Today, I’m talking to accounting and financial consultant, Philip Campbell. He is the author of the book “Never Run Out of Cash: The Ten Cash Flow Rules You Can’t Afford to Ignore.” Philip, you have a number of cash flow rules. One of them, number eight, says, “Cash flow problems can be seen in advance.” If so many owners struggle to get their arms around the cash flow of their business, how is it possible to actually see a problem before it happens?

Philip Campbell: Yeah, this is one of the big myths and I run into this all the time, where a business owner and entrepreneur says, “I have a cash flow problem and it just happened. I didn’t see it coming but right now I’ve got a huge problem and I need help to solve it.” Well, here’s the analogy I like to look at. Let’s say you get in your car, you’re getting on the freeway, you’re ramping up to about 70 miles an hour. Well, one of the tools that’s helpful for you when you’re on the freeway doing 70 miles an hour is a rearview mirror, right? But all you need is an occasional glance back there. And that’s pretty much what the financial statements are providing you. They’re always providing you a view into what happened in the past. What you need when you’re on the freeway doing the 70 miles an hour, you need a good clear view through the windshield. You got to have a good clear view of what lies ahead because that’s what’s going to help you avoid problems as you drive down the freeway and the faster you’re going, the clearer the view you have to have. Well, in the business, when you’re the entrepreneur and you’re growing your business, and you’re growing it fast, you have to have a view through the windshield. You have to have a view of where you’re going. Which means you have to have cash flow projections and when someone says, “Hey, I have this cash flow problem and it just landed on my doorstep,” basically what they’re saying is, “Hey, I’m looking at my financial statements about what happened in the past but I have no projections. I have no way to create insight about what lies ahead.” But it’s just kind of like you get up in the morning, you get in your car, start the car and then wrap a blindfold around your eyes and then back out of the driveway and head for work. Well, nobody in her right mind would do that, right? Because you’re going to have an accident along the way. The only question is whether you’re going to survive the accident or not. So what I try help coach entrepreneurs on is that you have to have projections. You have to have cash flow projections. That’s how you see problems before they arrive on your doorstep. For example, if you had a big balloon payment coming up on a mortgage or something like that, if you see that in advance and you have cash flow projections and you can see how much cash you have available to meet that obligation, if you’re going to come up short, you need it six months in advance, you have plenty of time to do something about it or if you have a big surprise investment that you have to make say to improve a location or something like that, when you have projections, you’re looking out to the future, especially over at least the planning horizon of the next six months and oftentimes beyond. When you have cash flow projections, it’s basically for your business; it’s basically like being in the car and having a view through the windshield. So most problems are there. They’re already in place but the business owner has a tendency to put the blindfold on. They don’t really want to see what’s about to happen over the next six months. So what I teach and implement really in the book, what I call the Peace of Mind Schedule, which is the tool that you use to set out your projections and you would be amazed at how it will help avoid problems because most problems when they occur, could have been seen three, four, five, six months in advance where the entrepreneur has plenty of time to make a list of all the different things that they can do to head that problem off in advance. But when it just shows up on your doorstep, then there’s not much you can do about it at that point.

Chris: I’m sure you can read more about that Peace of Mind Schedule in your book, “Never Run Out of Cash: The Ten Cash Flow Rules You Can’t Afford to Ignore.” Thanks, Philip.

Philip: Thank you, Chris.

Chris: You’ve been listening to Philip Campbell. You can find him at www.neverrunoutofcash.com. The Business Resource Center is a free resource for all businesses made possible by the Business Bank of Texas. I’m Chris Bjorklund, thanks for listening