Sehl Consulting

Fractional CFO Services


First Principles - Follow that Cash

Posted by Ted Sehl on December 30, 2010 at 11:24 AM

We often try to make business more complex than it is. We have reports with Key Performance Indicators (KPI's) to keep our fingers on the pulse of our business; we do elaborate financial forecasts or budgets; we do strategic planning ... but there is always one simple reason why we are in business - to make money.  And the simplest way to measure that is our net cash position - do we have more money today than we did yesterday.

While it seems like Business 101, you would be surprised how many entrepreneurs lose sight of cash.  I worked with a franchisee who thought he was ready to expand. He was busy arranging the financing, planning a new opening, and hiring staff.  He thought that his business was running fine; it was hitting all the key metrics and budgets that he set and he was ready to grow.  What happened was he had hired a new accountant months earlier and explained the metrics that he expected.  The accountant lacked confidence, so gave him what he was looking for in reports and moved all the variation into expense accounts to be examined later.  Later never came.  How could this entrepreneur have known that the reports were not accurate?  By looking at his cash balances.

As simple as it may sound, reviewing your cash balances on a routine basis confirms what you see in all of your other reports and metrics.  Find a way to build it into your daily or weekly routine.  As the owner, you are the one person who should have complete information and know what to expect to be going through your bank account.  A simple check will give you peace of mind and let you know where you stand.

Categories: Risk

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