What Cash Flow Can Tell You
Inadequate cash flow is like Kryptonite was to Superman; without cash your business will suffer and eventually die.
Yet most business owners I meet are not tracking their cash flow. They look at their P&L and balance sheet, but they do not conduct a cash flow analysis of their business.
Here’s the problem: The P&L and balance sheet are a look at what has already happened in the business, and there isn’t anything you can do to change that. Their usefulness is as comparison tools to measure how your business is performing compared to other months, quarters, or YTD. The past is important, but what about the future?
Too often business owners look at net income or profit and think they are making money. Your profit is simply the amount that your revenue exceeds your expenses; it is not cash but the theory of cash since your P&L does not take into account debt service. It does not matter how much profit you make if the amount of cash you receive is less than or equal to what you are spending. If you cut into your cash reserves long enough, you will eventually be broke.
Cash flow is the net amount of money that is flowing in and out of your business, and a cash flow analysis focuses on the timing of when cash comes in and when it goes out. The cash flow projection is the only tool you have to look ahead, and the future is where we want to go. By understanding your cash flow and how it can positively or negatively impact your business, you can make more informed decisions about how to run your business.
If you want to know how to manage your cash flow and create a sustainably successful business, give us a call. We are experts in the business of managing your business: 503-312-3145.