“Flying in the Fog – The Importance of Financial Mastery”

I flew airplanes for a few years. While flight was always exhilarating, a pilot learns quickly how conditions like fog affect your ability to fly safely. For those non-pilots, you have likely driven an automobile on a foggy night with low visibility.  There is really not much you can do but slow down.  But that is not an option when you are flying an airplane.  You are dependent on your instrument panel to tell you what is happening.  This is certainly no time to “fly by the seat of your pants”.  You need to know your instruments and you need to know critical numbers like air speed and elevation.  Your system is telling you your position and helping guide you to a safe arrival at your destination.

The same is true in business. As a business owner, you’ve probably “felt the fog” while “flying the plane” of your small business.  You need to be watching your instrument panel to successfully navigate the challenges.  The instrument panel of business is financial reporting.

Today I want to focus on Financial Mastery, which is a business’s instrument panel.   I can already hear the groans from some of you.  The fact is that financials can be FUN!  It really is a great feeling to know what is going on, and be planning your activities based on great feedback.  DENIAL is not bliss.  NOT KNOWING is why many small businesses struggle and often fail.  They run out of money.

So let’s take a brief look at the most important issue in financial mastery – cash flow.  The foundational tool to manage cash flow is a cash flow budget.  Simply put, a cash flow budget is a tool to plan and track your cash coming into the business, and leaving the business.  Cash is the fuel for the business.  For us to continue to fly, we must always have fuel in the tank and flowing to the engine.  A cash flow budget is a weekly or monthly summary and projection of money coming in and money going out.  It is important to understand that cash is NOT profit.  I have spoken to many business owners that are confused because their P&L statement shows a profit, but they have no cash.  For example, not only must you sell, but you must collect the money.  Also, if you have periods of time where your business is not profitable (e.g. a seasonal business), then you need to have other sources of cash available (e.g. savings, lines of credit) so that you don’t run out of gas.  All of these issues are displayed in your cash flow budget.  It is the fuel gauge for your business.

Now is the time to make sure that you have a working fuel gauge.  We would love to help you get a good cash flow budget in place for your business.  Next time we’ll take a look at another key financial mastery tool – breakeven.  This one helps you determine the profitability of your business and helps you understand what the business must produce to provide what you want.   

 

To check out your instrument panel and improve your strategic  business plan in 2011…call Ohio Business Coach, Ralph Berge 440.838.0991