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Cash (Flow) is King: Rules for Control, Growth and Sanity.

 

The most critical consideration for the financial security, stability and growth of your company is the control of CASH. Business owners can’t hide from the need for constant financial control. ‘Playing ostrich’ just doesn’t work, so let’s take a hard look and ask the tough questions.

  • What is your level of emergency cash reserve?
  • What do you rely upon for your source(s) of cash?
  • What level of debt do you carry and what are the terms?
  • How much are your current payables and what are the terms?

You should be able to respond to these basic inquiries WITHOUT referring to your accountant and/or bookkeeper.

Where’s the cash? Let’s assume that you have adequate cash on hand to cover payables for the next thirty days. Is that adequate? Will that cover any short term surprises that may occur? Of course not. Is sixty or ninety days adequate? Possibly, but probably not. What steps would you take in a crisis? Are you proactive in these steps or reactive, if and when the crisis occurs?

What’s the Plan? When is the last time you reviewed your financial planning with your banker? Your accountant? Your trusted advisors?  All too often the business owner waits until s/he is in need before turning to others. If the principles at your bank are not available for financial reviews BEFORE you are in trouble, perhaps you are dealing with the wrong bank. If you feel that you are too small to have a group of advisors, perhaps you are understating your needs. If your accountant is only available when it’s tax time maybe that firm is not meeting your requirements.

Turning it around. In the 21st century it is relatively simple to rely upon computerized systems, the bookkeeper’s reports, the bank statements, the credit statements and so on. Control and visibility are just as essential today as they were before these reports became available. In fact, probably even more so.

Before the creation of digital reporting systems, daily written controls were required to maintain any level of control in managing a business, large or small. Daily control is even more critical today. There is no need to modify the financial controls of your company to meet the requirements of a computer program.

It is much more beneficial to create the basic written controls and reports that you require and understand and then computerize and modify them to fit your system, rather than to allow the creation of a financial control system that the computer dictates.

The consequences, good or bad? It is almost unheard of for a company with a positive cash flow to end in a level of insolvency and/or bankruptcy. But it is not rare for companies that are “profitable” with a strong balance sheet to fall into insolvency and bankruptcy. Have you ever tried to pay your bills with your inventory? Have you attempted to meet your payroll with your receivables? How about paying your rent, lease or mortgage with your “retained earnings”?   

The answer is simple. Let’s return to the fundamentals of good business management and follow these basic rules. Taking personal control will help ensure the survival of your business.

1. Require daily reports on ALL critical aspects of your business. This includes receivables (aged), payables (aged), bookings, billings and most of all CASH ON HAND.

2. Sign all checks; do not delegate control of your finances.

3. Sign all purchase approvals; do not delegate the future to others.

4. Approve all invoices; do not pay possible fictitious companies.

Your eyes on the finances of your company daily breeds sanity, financial security and ultimate success.

Steve Weich is a SCORE counselor who has owned successful businesses. His extensive business experience includes engineering and design in high tech semiconductor companies. He formed his own computer company, opened successful restaurants and is currently involved in financial investing. He’s walked the talk. Find out more about SCORE at www.score.org.

 

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