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The Hidden
Killer of Small Business Today
© 2004 By
Philip Campbell
The single biggest reason the small business
failure rates are so incredibly high today is this one
simple fact: Most
business owners don't really know what's going on with their
most precious asset - their CASH.
Despite the fact that cash is the lifeblood of the business,
the fuel that keeps the engine running, most business owners
truly don't have a handle on the flow of cash into their
business and the flow of cash out of their business.
The reason this problem is so widespread today is that each
of us has been taught that managing the financial side of
our business means having financial statements.
We have all been taught that financial statements show us
the complete view of the financial side of our business.
Well, the truth is they don't.
*Recognize the Limitation of Financial Statements*
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There is no doubt the basic financial statements that every
business must prepare are very useful; in fact they are a
must.
Banks require you to provide them. Investors require you to
provide them. They are the common language of business. You
cannot succeed in business without them.
At the same time, if you have no other tool for
understanding and managing the cash flow of your business
other than your basic financial statements, you will always
feel out of control. You will be flirting with disaster
because you will be neglecting the lifeblood of your
business - your cash.
The accounting rules that govern the creation of financial
statements are not about tracking the actual flow of cash
through your business. They are focused on measuring profit
or loss - not cash flow.
That's why a profit in your financial statements does not
necessarily mean you created any cash.
By the same token, a loss in your financial statements does
not necessarily mean you lost any cash.
I worked with a company recently that routinely reported an
annual loss in their income statement of about $1,000,000.
The beauty of that business was that it actually generated
over $800,000 in positive cash flow.
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The rules of accounting required an
investment made years before to be amortized
(expensed over time) in the income
statement. The result was a big non-cash
expense in the income statement every year
that created a net loss.
But cash flow was unaffected. The cash
continued to roll in despite the fact that
the rules of accounting required this
expense to be included in the income
statement.
And the opposite scenario is also true.
The business headlines of the last three
years have been filled with companies that
showed incredible profits in
their income statement. But their cash flow
was a very different story.
They ended up in bankruptcy because they
actually had a negative cash flow. They used
more cash than they generated despite the
profit shown in their financial statements.
*Take Control of Your Most Precious Asset*
The solution to this problem is to have a
schedule of your actual and projected
revenues and expenses in the context of your
beginning and ending cash balances. Each
month should be presented next to each other
so the actual cash balances for previous
months are shown next to the expected cash
balances for the com
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A schedule like this presents the cash flow of
your business in a way that makes it crystal clear
where your money is
going and where you expect your cash balance to be
six months from now.
This is the secret to understanding the cash flow of
your business.
If you would like to see an example of a schedule
like this (I call it the Peace of Mind schedule),
you can get a FREE
Special Report "The Secret to Understanding,
Managing and Projecting Your Cash Flow" at
http://www.neverrunoutofcash.com/freereport.htm.
Once you realize you cannot look at your financial
statements and see a clear picture of your cash
flow, you
are on your way to a newfound understanding of your
most precious asset - your CASH.
Make a commitment to yourself now to take control of
the cash flow of your business.
You will be amazed at how much easier it is to
manage your business each day when you can see
exactly what's going on with your cash flow.
It's the single most important step you can take to
help make sure you never become another small
business failure
statistic.
ABOUT THE AUTHOR:
Philip Campbell is a CPA and the author of the book: "NEVER
RUN OUT OF CASH, The 10 Cash Flow Rules You Can't Afford to Ignore".
Philip has helped hundreds of business owners take control of their cash
flow. You can learn more about taking control of your cash flow and
eliminating your cash flow worries at
http://www.neverrunoutofcash.com. |
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