Tuesday, September 22, 2009
Let's Talk Cash Flow - by Audrey Godwin
If you are a business owner, you know how valuable it is to receive sound financial wisdom, advice and ideas. Thankfully, we have Audrey in our midst to share valuable information with us. Thank you Audrey!
Cash and profit are not mutually exclusive, although many business owners think that if they have cash in the bank, they should be profitable. When you talk about money in your business, what are you really talking about? Cash flow? Profit? Sales? When you discuss finances, what comes up? Cash? Debt? Equity contributions? Or am I being too forward in stating that you are regularly looking at your financial statements? There are many businesses that are in the throes of putting together their tax returns for 2008, yet have very little idea about what is going on in 2009. We just figure that we’ll file our taxes and then eventually catch up to make half-way decent decisions about what to do by the end of the year. And by the way, the end of the year is rapidly approaching!
Let’s talk about cash flow – what is it? Cash inflow comes from sales, debt financing and capital infusions by the owner. Cash outflow is payments of vendor trade credit, operating expenses, sales and marketing costs, overhead, product costs, owner compensation, equipment purchases and debt payments. Yes, this is a bit of the obvious, but if you are not reviewing cash flow regularly, then you may run out of steam way before you get to the finish line. And let’s ask a bigger question, what do you have in place to monitor and measure your cash flow? We tend to tell ourselves that the bookkeeping is more than we can handle because it’s “just not our thing” or, “I don’t do numbers”. While there may be a little bit of truth to that, we really want to dig deeper to “peel back the onion” so-to-speak, in order to understand what we believe around money that is keeping us from managing it well.
Money beliefs are not developed just because you started your own company. Money beliefs are formed way before that. As a matter of fact, owning your own company will bring to the surface those issues much more quickly. If we find ourselves struggling to keep cash flow positive, timely and available, there is a different conversation we need to be having. I have worked with women who are great at keeping detailed books and records for others, but when it comes to their own finances, they fall flat and miss the mark. Now, there is no blame here, it is just a matter of perspective.
As women, it’s easier to do for others with excellence, yet not really believe that we are deserving of that excellence. I spoke with a client a couple of years ago about this very issue. She was always getting her taxes done at the very last minute (October time frame) and wanting to do better the following year. However, her verbal commitment did not reflect her actions. I asked her what she was really willing to commit to in order for her business to thrive and flourish. Our conversations led to the childhood memories of how her parents handled money at home and the challenges they faced as a family. Her father seemed to always work overtime, but the cash flow was only enough to pay those bills and break even. What was modeled for her was always living hand to mouth and working hard for someone else, let little at home to have more than enough to support the family. What we finally did was determine what it would cost for her to get a bookkeeper for her own company and look at her financial statements every month. Uncovering the root of the issue, allowed us to pull it out, remove the toxic soil and plant new seed in the form of God’s word about finances, money and accountability. Moving forward, she has filed her taxes in April, with a cash flow and profit plan created for the New Year in place to ease the cash unknowns from her business cycle.
Having stable cash flow is the foundation to a successful company. Planning to have cash at the end of the year, is not only to determine how much to spend on tax write offs, but also to determine how much needs to be set aside for operations in the following year. Plan to be cash rich and profitable – it allows you to be a blessing to others in your company and community.
By Guest Author Audrey Godwin, CPA, of www.TheGodwinGroup.net