What You Could be Missing by Glossing Over Your Financial Reports

We all know it…

Ignoring your financial reports can be very dangerous!

Not only will it be harder to recognize where you are, but you will be blinded to where you are going. Few, if any, of your business’ goals can be reached without a clear view of Cash Flow and Profitability.

When you don’t have cash, you will be making decisions on short-term things based on scarcity, not based on what you want. The goal of entrepreneurship is to be able to do the things you want to do!

“Your success in business will ultimately be determined by the degree to which you create, and hang onto, CASH.” – Philip Campbell, in his book A Quickstart Guide to Financial Forecasting 

 

Cash Flow and Profitability

Whatever your goal may be, it will ultimately tie back to your ability to make excess cash.

When you have cash flow, it provides security and eliminates the fear of things like making payroll, investing monetarily, and knowing if you can execute on important decisions.

While cash flow does allow for growth, we sometimes focus only on revenue. The danger of this is, it’s all too easy to blow through the cash. Leaving you and your business worse off.

So let’s talk about what it takes for your business to be healthy!

It breaks down into three stages.


1) Confronting Financial Reality

Take a deep look at your financials and ask yourself; what are the weaknesses in my business that could be halting my cash flow? What are we investing money in with no return?

If you gloss over your financial reports, you may be missing those answers.

Then you need to build your cash balance up to 1 full month of operating expenses and put enough cash aside to pay your income taxes.

lastly, you should create a reliable financial forecast for the next 6-18 months.


2) Creating a Saftey Net

Now that you have an understanding of your financial reality, you need to create a safety net so you can be in a solid place to move forward.

Pay your bank line down to zero so that you can be operating off of your own cash flow, which will put you in a better position to multiply it.

Next, you need to reduce your personal guarantees. It is important to, as your business grows, separate yourself from the personal risk involved. This will allow you to feel more secure while allowing you to make more bold decisions because of your safety net.

Finally, build your cash balance up to 3 months of operating expenses. It is good to build up some cash balance and understand that not every dollar is meant to be distributed.


3) Grow and Enjoy Financial Success

Once you have done all of the above and your business is profitable, you will be in a very good spot. And only now can you double down on your success.

Enjoying the profits of a successful business will look different for everybody, but now you can start to use the excess cash flow to invest in things that will make an even bigger impact on your business.

You will want to be paying down any reaming debt, so you can be operating on pure profit.

Last but never least, you will be able to reward the people who helped make your business what it is.

To get a holistic view of breathing life into your business, take these 3 stages to heart! The goal is to understand how far you are from the end, and what the best course of action to get there is.

Building cash flow and profitability will ultimately lead to the freedom to build the business and life that you want.

If you want to go more in-depth on any or all of these topics, I highly suggest you visit Philip Campbell’s website by clicking his name anywhere on this post, or by visiting www.financialrhythm.com

Interested in learning more about how to connect your goals and vision with your financial metrics? Schedule a strategy call with Kahuna Accounting and we can discuss best practices for driving cash flow, profit, and growth!

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