The Cash Flow Cow Pie

May 14th, 2009 by Sharon Larsen

The first major mistake that kills most small businesses is cash flow.  We’ll talk about how to avoid that cow-pie today.

 

 

The shortest distance between you and smelly shoes is to let your cash stop flowing. Balancing profit and loss is the lifeblood of your company. In the early days of your venture, it is especially critical to conduct a daily review of your financial standing. Yes—I said daily, so do it! Some days the review will take five minutes; other days, your company will require a more detailed look. Regardless of how long it takes, make the time. You must know whether or not you made money, and you must know it today. Right now.

 

The first step in staying on top of your daily cash flow is to devise a thorough tracking system well before the cash actually starts to flow. It doesn’t have to be complicated, but the end result of your system must be that it gives you a clear picture of what went out and what came in each day. Apply your system so that you always know how your financial picture is shaping up for the month.

 

Determine how you will structure your tracking system. Out of the gate, a simple Excel spreadsheet might work nicely. Once you start increasing your income and expenses, you will want to consider a prepackaged software program like Quicken or QuickBooks. Whatever system you choose, be disciplined enough to track your cash flow daily (there are those italics again). It’s like watching your step between here and the fence out in the pasture. If you don’t do it, you’ll regret it.

 

Just as important as how you track your cash flow is who does it. If you already have the skills to do it, use them; if not, you can take a bookkeeping class online or through your local community college, or even just check out a book from the library. If you think you will need extra help, hire an affordable, part-time bookkeeper. As you get a greater vision for your venture, the best thing to do is to find someone who is able to wear many different hats: administrative assistant, editor, bookkeeper, customer service agent—whatever gaps you need to fill. This hire will be a great asset as your venture progresses.

 

If you decide to do the bookkeeping yourself, be sure to refer to the principles on knowing yourself in Chapter 1, “Grit,” and be sure that you really are up to the task. Specifically, are you a detail-oriented person who will track every penny—who loves tracking every penny—in and out? If you’re not, don’t be penny wise and pound foolish. Hire someone who will track your pennies and your pounds.

 

While we’re on the topic of cash flow, I want to talk about a related cow pie that many businesses owners can’t seem to avoid. It is the mess-waiting-to-be-stepped-in of “robbing Peter to pay Paul.” Leave Peter alone! Paul will take care of himself! What I mean is, taking money from your business’s marketing budget (or any department’s budget) to make your personal car payment (or any personal payment) not only impairs your marketing but will likely cripple your total cash flow. The same goes for using money from one business to support another. These are accounting nightmares waiting to happen. Keep your money separate and your books clean. Consistency here maintains good trust relationships all around.

 

Occasionally, you may find that some borrowing is unavoidable. If that is the case, keep detailed notes of the transaction. Make sure you know exactly when what went where and why it went there. An audit is not the place to sit, scratch your head, and wonder, “Why the [cow-pie] did I do that?”

 

Your dream really can thrive, but only if you understand and manage your cash flow.

 

Porter’s Points – The Cash Flow Cow Pie

 

  • Cows need to be milked twice a day. Tracking your cash flow is twice as easy—you only have to do it once a day. But you have to do it once a day, or else, like the cows, things might blow up in your face.
  • Your system for tracking your cash flow can be as simple as sitting down with five minutes and an Excel spreadsheet, or it can be as complicated as hunting out a new hire. If you can’t hack it on your own, get someone who can. Chapters 14 and 15 speak more to this point.
  • Leave business cash in the business! To the extent that you can, keep personal needs away from business funds. If you have to cross borders, reread the second bullet and track the transactions religiously.

 

 

Next time we’ll get into the second common cow-pie for entrepreneurs: death by net.

 

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