Financial Metrics - Cash versus Statements - Where to Look

In dealing with business owners and entrepreneurs, we are often asking questions about the financial health of a business.  This is also true when we deal with departments in a larger corporation.  Knowing the financial state and status of your business or department is truly critical.  

It is scary to see how infrequently some business people are monitoring their financial metrics and also understandable.  Most people that start out in business get annual statements from the accountant or perhaps quarterly.  Managers get a quarterly summary or see published quarterly numbers.  People get conditioned to waiting long periods before knowing how they are performing.

It is critical that finances and cash are monitored weekly and even daily and this doesn't mean waiting for the accountant.  Financials serve their purpose and update you on the health and condition of a business.  Unfortunately, changes in a balance sheet are often slow to demonstrate trends and a business owner need to know where things are constantly.  Cash is King in business.  Knowing your cash situation is the timely and critical means for managing business tightly.

We work with clients to ensure they are running at least a weekly financial/cash performance summary.  This includes, sales, accounts receivable (current and also immediately expected), accounts payable (current and also must pays), then current cash positions.   We can see cash shortfalls and manage our clients and suppliers.   We have seen people grow a $15 million dollar company on cash management without being able to read a financial statement ... this isn't ideal but does show the value of cash metrics before statement reviews.

Establish your weekly Key Performance Indicators (KPI's) for team performance and responsibilities AND then set the weekly cash flow KPI's next.  It is the key to growing a performing, profitable, company and team.

Plan B

With many of our coaching clients at the ownership and management levels we talk about Plan B. What is your plan to generate income that doesn't rely on your current job or your current company? If you assumed no one else was going to cover your retirement or long term well-being, what plan do you need in place? Now some people think this is about being a financial planner. It's not. It is about business strategy for you as an individual and as a company. It is critical to know that you have a second income stream, second opportunity and cushion if things ever finished up quickly with your primary role/job.

Where are your interests? What things do you love? Real estate? Stocks? Makeup? Organic Products? Find your interests and see where Plan B can fit around those. If you had to spend 3-4 hours a week working on your future then you have the makings for a Plan B. Do it with your spouse. Know that getting rich and being independent isn't based on what your financial advisor tells you - he or she has hundreds of clients and isn't watching your money every minute of the day. It is based on you taking time to find a hobby called Plan B that will continue to grow your knowledge in business and your wealth outside of your first role/career.