Do you know what happened to your cash last month?

Ultimately your success in business is going to be determined by the degree to which you create and hang on to cash.

Here is a quote from a great book The Millionaire Next Door, by Thomas J. Stanley, Ph.D., & William D. Danko, Ph.D.:

“Most people have it all wrong about wealth in America. Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier. You are just living high. Wealth is what you accumulate, not what you spend.”

The same is true in your business.

Everything ultimately comes down to your company’s ability to generate cash and to hang on to (accumulate) a meaningful portion of it.

• Cash is what pays the bills
• Cash is what pays down the debt
• Cash is what’s required in order to invest and grow your company
• Cash is what provides a return for your investors/owners
• Cash is ultimately what’s going to help you (and your family) retire in style and comfort (so Alpo is never on your dinner menu as you age!!) J

But understanding and managing cash flow is not a straightforward process.

That’s why cash flow is such a mystery to so many business owners and executives.

Do you know what happened to your cash last month?

Two questions

Here are two super-important questions to ask yourself each month:

1. What happened to the cash?
2. What’s about to happen to the cash?

The answer to these two questions needs to roll off the tip of your tongue at the end of each month.

And your monthly financial reporting package needs to be constructed to help the lenders and investors you provide it to answer those two questions within minutes of them reading the package.

You want the reader of your financial reporting package to instantly understand what happened to the cash

A simplified view into cash flow

To answer the two questions you need a simplified view into profitability, working capital, debt service, and capital expenditures each month.

Do this.

1. Ask your CFO to do a five or six line cash flow summary for you that rolls your beginning cash balance for the month to the ending cash balance. That will provide you the highlights of the key drivers that impacted your cash for the month and give you the answer to what happened to the cash.

1. Then have your CFO provide you financial projections down to the cash flow level (and summarized for you into the five to six key drivers of cash flow). That will give you the answer to what is about to happen to your cash.

It’s hard to win financially in business if you don’t have your finger on the pulse of your cash and your cash flow.

You need visibility in terms of what happened to the cash, and what’s about to happen to the cash.

Quick Quiz:

Can you answer the two questions about your cash for last month

a)      Yes

b)      Nope, I’m flying blind!

Which answer is true for you?

Remember, you are in the game of business to win. (And flying blind isn’t likely to be a winning game plan!)

The financial demands of business will force you, sooner or later, to be on top of your cash flow. You might as well start now.