The financial instruments in your business are like the instruments used in flying an airplane. During my previous employment, I flew planes, and on clear days, it was easy to rely on VFR—Visual Flight Rules. I would glance at the instruments as a check-and-balance system, but most of my attention was focused outside the windscreen. However, on days when the weather turned bad—as it did a couple of times while flying through the Columbia Gorge—the instruments became critically important and, ultimately, lifesaving. Thanks to my flight training, I had learned to fly under a hood, relying solely on the instruments without any external visual references. Those instruments saved my life and the lives of my passengers more than once.
The Instruments of Your Business
The financial tools in your business serve the same purpose as those flight instruments. Your profit and loss (P&L) statement, balance sheet, cash flow projection, and key performance indicators (KPIs) are the instruments that guide your business to success. Unfortunately, too many business owners either don’t use them or don’t pay enough attention to them—especially the cash flow projection. It’s like flying VFR in dangerous conditions, putting your business at unnecessary risk.
Understanding Your Financial Instruments
- Profit and Loss Statement (P&L): This is a historical document that provides a look back at your business’s performance. It is critically important when used as a comparison tool against previous months, quarters, and years.
- Balance Sheet: This is a snapshot of your business’s financial health at a specific point in time. Like the P&L, it’s a retrospective tool but essential for understanding your company’s financial position. For example, banks don’t lend based on your income statement; they lend based on your balance sheet, often using the debt-to-equity ratio and retained earnings to determine borrowing limits.
- Cash Flow Projection: Unlike the P&L and balance sheet, the cash flow projection is forward-looking. It helps you anticipate future financial challenges and opportunities. This tool is arguably one of the most valuable financial instruments available, yet it’s often underutilized by business owners.
- Key Performance Indicators (KPIs): These are metrics that provide insight into your business’s operational health. They help you monitor performance and make informed decisions.
Don’t Fly Blind
Running your business without relying on these instruments is like flying VFR in uncertain weather—it’s risky and can lead to disaster. By paying attention to your financials and using tools like the cash flow projection, you’ll navigate your business through all conditions, ensuring its long-term success.
Take Action
- Review your P&L and balance sheet regularly.
- Create and maintain a cash flow projection to anticipate future trends.
- Use KPIs to assess your business’s health and performance.
- Create a financial dashboard to measure your progress.
If you’re unsure how to get started, I’m here to help. I can provide a cash flow template or assist you in setting up these essential financial tools. Don’t fly VFR with your business. Learn to use the instruments that will guide you through any conditions.
Reach out to me today for guidance or assistance.
503-312-3145
garyfurr@garyfurrconsultng.com
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