The BusinessCPR™ Solution to Cash Flow Chaos: Building Sustainable Cash Reserves

Stop relying on outdated info!  Bank statements and monthly financial reports lag behind every dollar your business spends.  Successful businesses use a cash flow management system to identify actions needed in the coming weeks.

An effective cash management system identifies and projects cash movement in and out of the business from weekly, biweekly, or over four, eight, twelve, or fifty-two weeks. Below are four fundamental management principles that will lead to better business cash flow management:

• Business control begins with proactively managing cash flow timing and amounts.
• Daily cash flow projections rob you of time to improve the quality of your cash flow.
• Being more interested in your topline often leads to losing sight of your bottom line.
• Projecting your weekly ending cash position are like business “blood pressure checks.”

Business control begins with proactively managing cash flows.

“Control” over cash implies critical thinking and decision-making by management on how to use every dollar of cash best.  This process starts with understanding how cash is collected and paid out so that more cash remains in the business than is paid out.

Business owners gain control over cash flow by following the money through week-to-week cash forecasting.  This practice projects the timing of cash flowing into and out of the business.  Knowing when cash is coming in and when cash will be needed to fund operations is the only effective way to disburse your money prudently.

Failure to manage your cash flows results in cash flowing through your business like the following image—money going everywhere because it is undirected and unmanaged.

Daily cash flow projections rob you of time to improve the quality of your cash flow.

The hardest part of cash management is forecasting the amount of money available for weekly disbursement. For practical purposes, daily cash projections are too often and will rob you of quality time that could be used to improve the quality of your cash.

Cash quality equals profits, and cash from profits is the cash that matters because it’s the cash that you get to keep, not the cash that flows through your business.

Being more interested in your topline often leads to losing sight of your bottom line.

Businesses with poor cash quality typically have high sales and low profitability.  Any business trading the equivalent of a dollar for four quarters is a business that’s break-even at best.  Business owners in this position are either continuously anxious about cash or clueless.

When you are prouder about how much you are selling than you are about how much you make on each sale, you put your business at risk.  It is vital to long-term business survival that everyone in a business appreciates that long-term business success comes down to the money held onto, not how much product is sold.   Business owners who don’t understand this concept are the most difficult to help.

In contrast, the owner who is anxious about their cash and its flow, management, and quality is an owner who can prosper during good times and survive the bad.  To put this difference in attitude in medical terms, these forward-looking owners are like those who change their diet and lifestyle after learning they’re at increased risk of a heart attack.  They follow their doctor’s instructions to eat less, cut out alcohol and cigarettes, start exercising, and monitor their blood pressure.

Projecting your weekly ending cash position is like business “blood pressure checks.”

Just as you gain control over your blood pressure by following your doctor’s orders, you gain control over your cash velocity and, ultimately, your cash quality by managing your cash position weekly.

A useful cash management tool will help you calculate how much cash you will likely have on hand at the end of a week.  You start by adding the forecasted cash inflows you anticipate to receive to your beginning cash position.  These monies represent your cash inflows.  You then lay out what cash you plan to pay out to employees, lenders, subs, and vendors weekly.  These monies represent your cash outflows.  The law of cash management is that cash inflow must be higher than cash outflow.

If you find yourself with little to no gap between your cash outflows and your inflows, that’s the equivalent of your doctor telling you that your blood pressure is too high.  Left uncontrolled, high blood pressure damages arteries, which can become blocked and prevent blood flow to the heart muscle, leading to a possible heart attack.

How healthy are your profits?

When there is no buffer between cash outflows and inflows, your business can suffer the equivalent of a heart attack.  Take the “free” BusinessCPR™ Business Assessment to learn how at risk your business is from cash flow problems caused by poor profit quality. Click here to take this no-obligation business diagnostic.

Upon completing the business assessment, you will receive a risk profile showing how at risk your business is to suffer cash flow and profit problems, the primary cause of business cardiac arrest over the next three years.