Your Financial Dashboard is Your Lifeblood for the Business

Hi, this is Gary Furr. Welcome to my podcast channel, Turing complexity into Simplicity.

As you probably remember I mentioned in a previous podcast about how I used to fly an airplane and when flying the airplane in order to ensure a successful flight; takeoff, flying and landing I had to pay attention to the instruments. The instruments on the dash of the airplane. They determined that I would arrive at the destination that I wanted to arrive at and that I did it safely without any problems. It's not much different in business.

In order to have your business to be successful you have to pay attention to the instruments and the instruments of your business dashboard are the P&L, the balance sheet and a cash flow projection. These are the tools that you have in your business to help you know whether you're flying safely and going to the destination you want to go and arriving there safely and coming back. No different than flying an airplane. It's like driving your car.

You know sometimes if you're not paying attention to the instruments you think you're going 70 and you're actually going 35. Or you thought you had a full tank of gas you actually only have a quarter tank of gas. These are problems because you're not paying attention to the instruments on the dashboard of your airplane or in your car and the dashboard instruments are the P&L, balance sheet and cashflow projection and we need to be paying attention to them; otherwise, we're not going to know where our business is. We're not going to know how it's doing and too often I run into business owners and I asked them, "How often do you pay attention to the financials of your business," and then there's usually a pause and I say, "Well not as often as you should be obviously," and they say probably not.

I had a business that was failing, that was losing money every year and I asked the owner I said, "How often do you pay attention to the financials, do you actually look at them?" and she said once a quarter, and I was like, "Wow!" Even if you were making lots of money and you were flowing in cash, once a quarter is not enough. You need to be paying attention to your financials because they are the instruments that tell you whether you're doing well or not doing well. We have to learn what those instruments are.

I have this favorite restaurant that I love to go to, and I love to sit at the chef's counter, and I watch them cook and I watch them and it's like a symphony the way they put this meal together. It's like they understand the language of business. They know about pinches and teaspoons and tablespoons and all those things to make an amazing meal. They understand the language of cooking. If you're a musician the language of music is sharps, flats, chords whatever those are for a musician.

The language of business is accounting, and we have to understand that language. We have to understand our P&L, our balance sheet and the cash flow projection, and I'm amazed at how few businesses do not produce a cash flow projection or pay a close enough attention to the instruments of that dashboard and they wonder why they're getting in trouble. So, let me explain a little bit. Your P&L is like a movie. It's a period of time so from January to February or January to the end of March, like Q1 or Q2, it's a period of time so it's like a movie that you're taking of your business, and the P&L is nothing more than your revenue minus your expenses which equals net profit.

Now it is important to understand that net profit is not cash. It's the theory of cash but it's not actually cash in your business because the net profit doesn't take into account some other expenses that you may be incurring in your business, like do you have debt payments, do you have a loan? Are you making debt payments on that loan, principal payments? The interest payments show up on the P&L, but the debt payment or principle payment does not. If you are you taking draws from your business or you're taking owners disbursements that's not showing up on the P&L so when you look at your P&L, and business owners do this all the time, where they look at the P&L and they say I have net-income, I must have money, I must have cash," but often they don't.

I had a business owner that didn't understand why he didn't have any cash in his business and so we looked at his P&L and sure enough he had a net profit. He said, "I have a net profit in my business, but I have no cash." And I said, "Well do you take a draw?" and he said yes. I said, "Do you have equipment that you're making principle payments on?" and he said yes. I said, "Well that's why you don't have any cash. Because it's not showing on your P&L." It's shows up in the cash flow projection that's why we do a cash flow projection, or it can show up in your balance sheet.

The balance sheet is like a snapshot in time. It takes a snapshot of your business at a particular time. So, whatever that time is you can determine that and there you can see the difference in your cash, and you can see the difference in your principle payments going down and your owners' equity you can see it. Where you can really see it is if you do a cash flow projection where every bit of the information comes from the P&L goes on the cashflow projection including principle payments, or owners draw, so you actually can see the movement of cash in and out of your business.

So, we have to understand the P&L, we have to understand the balance sheet. These are the instruments of your business and then we need to take it a step further and do a cash flow projection so that we can understand that movement of cash in and out of our business because there's only four ways to get cash for your business. Cash from sales, which is what I recommend the most, cash from borrowing, cash from investment or cash from the sale of assets. Now cash from sales is obviously the most important. Cash from borrowing or cash from investment usually comes with a debt payment and interest payments so you take on debt when you do that. Or cash from the sale of assets, assets that you have sitting around that you're are not using. That's the only four ways you're going to get cash for your business, so we need to be focused on sales.

We need to be focused on revenue generation. We need to be managing those expenses closely and we need to be paying attention to the P&L and the balance sheet and doing that cash flow projection. Because there is only one way to understand what your business is doing is to pay close attention to the instruments no different than driving your car, no different than when I was flying the airplane. I had to pay attention to the instruments in order to know how I was doing and too few business owners are not paying attention to their instruments: The P&L, balance sheet and cash flow projection.

Now we have to understand that the P&L and balance sheet work together. They interact they are not like stand-alone documents; they interact with each other and we understand that we understand the language of accounting, we can understand those tools those instruments those scoreboards and how our business is doing. If you are not paying attention to the instruments of your business: the P&L, balance sheet and cash flow projection I would highly encourage you to do so because cash is the life blood of your business and we have to understand these tools and these instruments to be a better driver or to be a better pilot or to be a better cook or a better musician. We have to understand the language of business.

If you are paying attention to your financial statements and you're still struggling and you want to have even greater success in your business I can help you to better interpret what those instruments mean and how to better plan and move forward and to gain greater success in your business. I've done these many times.

I recently helped a client who wasn't paying attention to their financials start to understand what the financials mean, how they interrelated to each other and now they are making money. They understand that net profit is not cash, it's the theory of cash. So, they understand that better. They better understand the language of business. I can help you too.