Make Your Cash Flow Simple and Easy-To-Understand

June 13, 2019

make-your-cash-flow-simple-and-easy-to-understand

One of the smartest things you can do in business is pay attention to cash.

A great tool for paying attention to cash is the Statement of Cash Flows. BUT, the Statement of Cash Flows is created by accountants… for accountants. Few business owners look at it because they don’t understand it. And few accountants do much to try to shine a light on cash flow for business owners.

I learned early in my career as a CPA and a CFO that the secret to making the cash flow of a business easy to understand, was to simplify it down to a non-accountant, simple, common sense message that a business owner or CEO could easily relate to.

I created the Cash Flow Focus Report to simplify cash flow for non-accountants.

There are four steps to creating the Cash Flow Focus Report:

  • Drop in the beginning cash balance and the ending cash balance
  • Identify the three largest changes in cash for the period
  • Write a one-line explanation of each change
  • Determine whether each change in cash is good or bad

Once I create the Cash Flow Focus Report, my next step is to articulate the “2-minute conversation.” Assume you are about to sit down with your banker, or your business partner, or an investor (maybe even your spouse). You have 2-minutes to briefly explain to them “what happened to the cash.” Not the nitty-gritty-greasy-grimy details. Just a short, big picture discussion about the company’s cash flow that enlightens the people you are talking to.

The goal of the 2-minute conversation is to provide them that understanding… while also demonstrating to them that you know what’s going on in your business… that you are paying attention to cash. (Imagine their horror if they discovered that you, the person running the business, didn’t know what’s going on with the cash flow!)

The Cash Flow Focus Report for Scott’s Liquid Gold, Inc (a Small Public Company)

I came across a public company recently, Scott’s Liquid Gold, Inc recently and decided to learn more about the company. The first thing I do when I’m looking at making an investment in a company (public or private), is create the Cash Flow Focus Report.

Here is the focus report I created:

Screen Shot 2019-06-12 at 3.13.15 PM

This post talks through how I created the focus report for Scott’s Liquid Gold and a discussion of each of the three largest drivers of cash for the year.

Make Your Cash Flow Simple and Easy-To-Understand

Remember, the real bottom line in business is cash! Knowing what’s going on with the cash is a requirement in business. The penalties for not paying attention to the cash can be huge… and incredibly painful.

Try the Cash Flow Focus Report. I’m confident it will help you understand your cash flow in a refreshing new way. Here is a link to a post that provides the step-by-step guide to simplifying your cash flow with the Cash Flow Focus Report.

Topics: profitability, making money, cash flow

Philip Campbell

Consultant, Author

Philip Campbell is a CPA, consultant, and author of the book A Quick Start Guide to Financial Forecasting: Discover the Secret to Driving Growth, Profitability, and Cash Flow Higher. This new book provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. He is also the author of the book Never Run Out of Cash: The 10 Cash Flow Rules You Can’t Afford to Ignore. The book is a step-by-step guide for business owners and managers who want to better understand and manage their cash flow. Since 1990, Philip has served as a financial officer in a number of growing companies with revenues ranging from $5,000,000 million to over $1,000,000,000. He has been involved in the acquisition or sale of 33 companies (and counting) as well as an IPO on the New York Stock Exchange. Philip loves helping entrepreneurs and business owners think strategically about the financial side of their business. His consulting work is focused on providing the financial insights that leaders need to increase profits, improve cash flow, and enjoy the fruits of financial success in business. What really sets Philip apart from the average financial person you meet is his passion and excitement about helping entrepreneurs and CEOs take control of their cash flow. In fact, early on in his career, he focused and “preached” so much about the importance of cash flow that people now call him CASH. Philip is the founder of Financial Rhythm, a website devoted to people who are serious about creating financial health, wealth, and freedom in their business. If you're an entrepreneur or business owner, Financial Rhythm is a place to get simple, actionable strategies for creating a financial future that is bigger and brighter than your past. Philip lives in Austin, Texas. You can email Philip at pcampbell@pdq.net.
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