Cash is king
The 10 cash flow rules you can’t afford to ignore
By Philip Campbell
First published in November 2004
10 rules to help you take control of your cash flow so you can create the business you’ve always dreamed of.
The statistics on small business failure are alarming. According to Michael Gerber, author of “The E-Myth: Why Most Small Businesses Don’t Work and What To Do About It,” among business startups, 40 percent fail in the first year, and 80 percent fail within the first five years. Why? Chiefly because they ran out of cash. Don’t let this happen to you. Here are 10 rules to help you take control of your cash flow so you can create the business you have always dreamed of.
1. Never run out of cash. Running out of cash is the definition of failure in business. Make the commitment to do what it takes so it does not happen to you.
2. Cash is king. It’s important to recognize that cash is what keeps your business alive. Manage it with the care and attention it deserves. It is very unforgiving.
3. Know your cash balance right now. It’s absolutely critical that you know exactly how much cash your business has right now. Even the most intelligent and experienced person will fail if he is making business decisions based on inaccurate or incomplete cash balances. That’s why business failures are not limited to amateurs and neophytes.
4. Do today’s work today. It’s the key to keeping an accurate cash balance in your accounting system. Do the accounting chores when you need to do them and you will have the numbers you need, when you need them.
5. Either you do the work or have someone else do it. It’s simple. The work must be done. Like mowing the lawn, you just can’t ignore it. Someone has to do it.
6. Don’t manage from the bank balance. The bank balance and the cash balance are two different animals. Rarely will the two be the same. It’s futile (and frustrating) to attempt to manage your cash flow based on the balance in your bank account. It’s a prescription for failure. You reconcile your bank balance. You don’t manage from it.
7. Know what the cash balance should be six months from now. Answering this one question will transform the way you manage your business. It gets to the heart of whether you are managing your business or whether your business is managing you.
8. Cash flow problems don’t just happen. You would be shocked and amazed at the number of businesses that fail because the owner did not see a cash flow problem in time to do something about it. Always be able to answer the question, “What do I expect my cash balance to be six months from now?”
9. You absolutely, positively must have cash flow projections. Cash flow projections are the key to making wise and profitable business decisions. They give you the answer to the all-important rule No. 7. It’s impossible to run your business properly without them.
10. Eliminate your cash flow worries so you are free to do what you do best: Take care of customers and make more money. Use these 10 rules to free yourself from cash flow worries, so you can focus all your time and talents where you can make the most difference in your business. Focus your unique talents and abilities each day on ways to grow your business and make more and more money each year.
And that’s a recipe for success and wealth creation.
These rules are published courtesy of Philip Campbell, a C.P.A. and the author of the book: “Never Run Out of Cash: 2 Questions that Will Eliminate Your Cash Flow Worries.” Do you have the cash flow of your business under control? Learn more about regaining control of the financial side of your business at www.neverrunoutofcash.com and www.growandsucceed.com.