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:
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.