One of the most important lessons business owners must learn is that cash flow is king. It doesn’t matter how much money is coming in the future if you don’t have enough money to deal with your business TODAY. Employees can’t wait on paychecks until your customers pay. Suppliers may not be willing to extend your credit any further and you may not be able to purchase the goods you need in order to deliver to your customer and receive payment.
More businesses fail for lack of cash flow than for lack of revenue or profit. Why?
1. Business owners overestimate income and underestimate expenses.
2. Business owners fail to anticipate a cash shortage and run out of money, forcing them to suspend or cease operations, even though they have active customers.
Entrepreneurs need to understand what their near and intermediate term cash requirements are – and why. How to do this? First make sure you understand the difference between profit and cash flow.
• Profit is the difference between revenue and expenses. Due to accounting rules, there can be timing issues that effect when you recognize revenue and when you receive the cash associated with that revenue. Likewise, similar timing issues can effect when you recognize expenses, as opposed to when you pay the bill.
• Cash flow is the difference between inflows (actual incoming cash) and outflows (actual outgoing cash). Cash inflow is not counted until payment is received and expenses are not calculated until payment is made. Cash flow also includes infusions of working capital from investors or debt financing.
Your challenge this week is to create a simple cash forecast, by month (or week, if you wish) for the next six months. A template to use as a starting point for your cash forecast is available HERE.
1. Start with the amount of cash on hand – your current bank account balance(s) plus actual currency and coin.
2. Make a list of anticipated inflows – customer payments, collection on bad debts, interest or investment earnings, etc. List not only the amount, but also when it will be coming in.
3. Make a similar list of anticipated outflows – payroll, monthly overhead, payments on accounts payable or other debt, taxes payable or set aside for future payment, equipment purchases, marketing expenses, etc.
Assemble this into a simple Excel spreadsheet that you review with your management team on a consistent basis. If at any point you see you have a negative cash balance, you have a potential problem that you need to address immediately.
The time periods whereby management measures this can vary – if there are serious liquidity issues it may be necessary to project forward by week, otherwise by month or even by quarter may be sufficient. This should be monitored carefully by all appropriate members of senior management so that if cash issues appear on the horizon concrete steps can be taken to address them.
If you have any questions or feedback, please contact me.
“With the past, I have nothing to do; nor with the future. I live now.”
– Ralph Waldo Emerson
Sometimes being a leader means feeling overworked and overwhelmed. How often do you find yourself driving while talking on the phone? Sitting in a meeting while your mind is mulling over another issue? Checking your emails while on a phone call?
If this is sounds like your daily experience – just “part of the game” for you – then this week’s challenge may be the toughest one to date. However, I guarantee that if you take it on 100% you will get dramatic results, both personally and professionally.
The Challenge: Focus on being present at whatever you are doing this week; whether it’s listening to a presentation, participating in a conference call, reviewing monthly reports, reading a book, driving or talking to your spouse or kids – do it with 100% intention and awareness.
The Results You Can Expect:
• Increased enjoyment at whatever you are doing
• Less stress
• Better relationships
• Get more done
The Bonus: When you practice being present you begin to experience flow – that magical zone where you are completely absorbed in what you’re doing. It’s a powerful and productive zone which, incidentally, makes you happier. However, it can’t happen if you’re switching between tasks or thinking about the past or the future. It happens when you are in the present.
Practice being present each moment throughout the week and notice the difference you begin to experience.
“I never think of the future. It comes soon enough.” – Albert Einstein
Send me an email (firstname.lastname@example.org) and let me know how it goes. If you find this helpful, please share it with someone who you think would benefit. Thanks in advance. – Bruce, 954-356-0439
I recently presented at the Gold Coast Venture Capital Conference. It was a great event attended by a lot of entrepreneurs. For those of you who missed the event here is a copy of my presentation: (If you would like to receive a pdf version, email me and I’ll send it to you)
Welcome to June!
This week’s business challenge is about completion – finishing what you start.
As business owners and entrepreneurs, it’s easy to come up with great ideas and new projects but success is driven by what you can actually implement. Your challenge this week is to take some time to review what projects or ideas you and your organization have started but haven’t finished. What’s holding you back? Now is the time to either create new timelines to “put the top on the box” and finish or abandon them altogether. The second part of the challenge is to make sure you have finished each of the previous Business Challenges over the past three weeks. Each challenge represents topics that are vital to a company’s success so if you haven’t done them it’s time to step up to the plate. If you are stuck or confused, call or email me and let’s get you unstuck and clear. Finishing what you start is an important leadership muscle to consistently exercise, and a key differentiator of successful companies.
If you have any questions on this or any other topic, please contact me. I look forward to hearing from you!
I was at a new client’s office recently and was walking around meeting some of the management team. I stopped to talk to the VP of Operations, a busy guy bustling around answering questions and giving lots of direction to his team who also looked very busy in their maze of cubicles. I asked him how things were going and his answer shocked me because of its honesty. He said, “I really don’t know. I know we are really busy and everyone works long hours but I don’t know if things are going good or not because I’m not clear on what we are working toward.”
We talked further about his remarks which revealed a simple, yet all too common, issue for many businesses. The company had never identified it’s Key Performance Indicators (KPI’s) so the management team didn’t know how they were doing. To them, busy = good.
For those of you not familiar with KPIs, they are quantifiable measurements that determine if you are progressing toward your goals or not. Many businesses get caught up in getting the work out and never evaluate whether “the work” is supporting the overall goals of the company. The last few weeks, your Leadership Challenges have been about Strategy and Plans. If you missed either one of those, refer back to the Strategy Challenge (http://therectorgroup.com/leadership-challenge-for-week-of-may-9-2011) or Working Your Strategic Plan Challenge (http://therectorgroup.com/leadership-challenge-for-week-of-may-9-2011) before you move on.
This week’s Business Challenge is the KPI Challenge. Are you ready? Take a minute to think about and answer these questions:
1. Do you know what your company’s Key Performance Indicators are? ___Yes ____No
a. If yes list them.
b. If not, give some thought to what your overall goals are and how you will measure your progress, or lack thereof, toward that goal? List them here:
2. Do you have a system in place to measure and manage your KPI’s routinely?__Yes __No
a. If yes – describe your system. (who, what, when, why and how)
b. If no, develop one. Spend time with your team determining how each KPI you listed in #1 will be measured and managed routinely. Create it!
3. Are you regularly meeting with your management team to discuss KPI’s ? __Yes __No
a. If yes, describe how often you meet? Is it consistent? Are you using the time to discuss, learn and grow form the results?
b. If no, create a schedule and communicate with your team your expectations.
If you answered yes to each question, congratulations! Keep up the good work. If you answered no to 1 or more questions, use the above excercises to create a system to manage and measure the KPI’s for your organization. Good luck!
For additional information on KPI’s view my video: Key Things That Should Be On Every CEO’s To-do List
If you have any questions on this or any other topic, please contact me. I look forward to hearing from you!
Bruce Rector, President
The Rector Group
Recently I participated as a judge at a business plan competition. After reading a number of plans from the different competing startups, and watching 10-minute pitches from the management teams of these startups, I thought it might be helpful to provide a little perspective from the other side of the table, as it were. So, for those of you contemplating going into equity-capital raising mode, here are three major things to keep in mind as you march down that path:
1. Remember your goal.
Your goal is to garner the attention of prospective investors, and to engage them in a focused conversation about the opportunity that your company represents. Given that, it’s important that you frame your story as what it is: a sales story around a company.
2. Remember your audience.
It’s quite probable that your audience will not be intimately familiar with the details of your industry or company. Long verbose descriptions of the unique attributes of this investment opportunity will lose people. A picture is worth 1,000 words, and often a thoughtfully created graphic can get the point across with far more impact if you are addressing an audience without deep knowledge of the opportunity, or a lot of time to spare making an initial assessment.
3. Remember your story.
Investor’s are NOT looking for the coolest technology or an interesting gadget. Fundamentally they are looking for opportunities to address large, rapidly growing markets – coupled with a credible management team. Your story must succinctly address those issues – preferable with compelling graphics that make the story easy to understand.
Your challenge for May 16, 2011 is Working Your Strategic Plan. Companies spend a lot of resources creating a strategic plan that ends up never getting looked at until next year and worse yet, never implemented. Why? It is challenging to take ideas and put them into action day in and day out. And while a strategic plan is essential to the success of any business, how it gets implemented determines how successful the business becomes. This week’s challenge involves determining whether or not you have the type of organization that can create and implement your strategic plan.
Take the Challenge: Working Your Strategic Plan
1. Schedule an hour to get your key management team together (in person or via phone call) to review the 2011 strategic plan. If you don’t have a plan see last week’s challenge.
2. Grade yourself on your progress of implementing your strategic plan keeping in mind we are in Week 20 of the year.
3. Determine if you have a clear action plan or implementation plan for each goal and idea in your strategy.
4. If not, create one. Define the specific tasks, who is responsible for completing each of them and when each is to be completed.
5. Create a reporting mechanism moving forward for each person or team to report progress. Determine who will drive the implementation.
6. Schedule your next review session. I’m a big believer in weekly review sessions that the CEO or President runs. It may be painful at first but if you want results, you must manage the process and monitor the results.
Developing a Strategic Plan that you put in into effect is vital for business success. Do what you say you’ll do when you say you’ll do it. Tie individual employee’s objectives to the corporate objectives by being clear about what must be done, by whom, and what the payoffs will be. Make sure to provide ongoing feedback and progress reports.
One of the primary functions of a successful leader is to establish, develop, articulate, and reinforce the organization’s mission, values, and goals. For a strategic plan to be effective – and not dismissed as worthless by the work force – leaders have to live, model, and continually reinforce the vision and the planning process.
Good luck with this week’s challenge! I look forward to hearing your feedback.
Make sure you are signed up to get your Business Challenge Every Monday. Sign up Here.
When is the last time your business had a thorough checkup? If you are like most entrepreneurs or business leaders, it’s on your mind – just not on your calendar. Yet it is one of the most impactful ways for you and your management team to spend time together. So take out your calendar and schedule 2 hours on your calendar in 3 or 4 weeks. That’s enough notice so everyone’s schedule isn’t filled up. Continue reading
Jack Daly recently passed along these 12 Leadership Lessons that I thought were good reminders for all of us. Take a look and see if there’s an area you need to spend more time on. Enjoy. Continue reading