In tough times and with the day to day activity of just running the business, it is easy to get distracted and forget some basic business fundamentals. Here are three important “musts” to keep in the forefront of your mind.
Cash Is King. Manage it with the attention it deserves.
Cash is what keeps your business alive. Without cash, you have no business. Make sure you have a current statement of cash flows. This is perhaps the most important report a business owner needs to run the company to have an understanding of where the cash came from and how it was used.
Never run out of cash. Make the commitment to do what it takes so that it does not happen to you.
Knowing your bank balance is interesting. Having a current and accurate “book” balance from the accounting system is imperative. Relying on the up to date accounting system cash balance, which must be periodically reconciled to the bank balance, will allow you to avoid serious and expensive mistakes. If your accounting department cannot post all transactions to the books on a timely basis, then use a cash control spreadsheet – simple report that shows the major categories of flow in and out, with a daily balance.
You absolutely, positively must have cash flow projections.
Cash flow projections are the key to making wise and profitable business decisions. It’s impossible to run your business properly without them. The finance or accounting staff must establish a process to create realistic cash flow forecasts in order to understand where the cash will be during the next 13 to 26 weeks. The cash forecast must be reviewed at least weekly. Establishing cash flow projections is rather easily accomplished using a few basic principles coupled with your intuition and knowledge of the business. Adjust for any significant changes you expect to happen that are different from the past period and never project revenues that you cannot be fairly certain will occur.
Understanding the company’s cash flow will give you peace of mind and help you take control of the financial side of your business. In addition, it will provide your team with the information needed to run the business effectively.