Most people think that cash management, cash flow, and cash forecast are the same - they are not. If you don’t know the difference, you may have a false sense of security about where you are and the progress you are making.

Even if you do know the differences between the three, you also need to know how to use them to run your business.

I’ll give you a rundown of each one, what they are used for, and some key ideas for using them to run your business.

What is a “Cash Forecast” and What is It Good For?

A cash forecast is a way to predict when cash is coming in and going out, based on your business model. I like to call this “business modeling” because it creates a sense of how your business is run. Sometimes it is also called “cash modeling.”

A cash forecast is also a predictive model of your cash-based profit and loss statement.

Cash forecasts are usually set-up for monthly calculations, which go out 1-3 years. They use cash-basis...

In my last article, “Some Bad, and Some Good, Advice on Cash Flow Management,” I told you I’d give you the details for the seven steps to implement a sound cash management program.

I mentioned that people sometimes want to move too quickly. Generally, their problem isn’t what they think it is (see my article “Keep Digging. The Problem with Your Cash Flow Isn't What You Think It Is.”)

I advise everyone to take a systematic approach.

In this article I’ll go into more detail on how to implement a solid cash management program in any company. Here are the seven steps:

1. Put your bookkeeping in order.
2. Analyze your financial reports.
3. Find and implement quick fixes.
4. Implement bigger projects. 
5. Create a cash flow forecast.
6. Use cash management tools.
7. Monitor a cash management dashboard.

Step 1: Put your bookkeeping in order. Create a solid foundation.

Most businesses without a professional controller will have significant errors in...

Businesses can only thrive when they have outstanding bookkeeping. Good bookkeeping is the basis of a systematic cash management program tailored to specific business needs. It also makes sure that the rest of the business is running smoothly because cash is available, and documentation is done correctly.

Without good bookkeeping a business will fail.

Don’t believe me? Here are the reasons that any business will fail without good bookkeeping:

1. A cash crisis is guaranteed
2. Credit lines will be reduced and terminated
3. Vendor relationships will be destroyed
4. Client relationships will be ruined
5. Constant chaos will haunt the company
6. The IRS will become a nightmare
7. Investors will sue and rebel
8. The best employees will leave
9. An owner’s health will deteriorate
10. All hope will be lost

I’ve shown this list to a few people and they think I’m being harsh. What do you think? Read my explanations and then decide…

A cash crisis is guaranteed

If a company...

My first full-time consulting assignment was for an outdoor power equipment company, we’ll call it “Bill’s Four-Season Power”, in a rural area in western Virginia. It’s the type of place that sells gas powered lawn mowers, trimmers, and lawn tractors in the summer, then snow blowers, chain saws, and wood choppers in the winter. The store was well stocked with recognized brands and they had a lot of long-term customers including a couple of local fire departments. Four full-time repair people on staff in the service department made sure that the customers stayed happy; they could repair just about anything.

Sales were good, and they were well respected by their suppliers. They had incredible credit terms with their key manufacturers. The showroom was clean, brightly lit, and had a coffee machine so people could take their time and relax while talking to the staff about their power equipment needs.

So why was I there?

“Their cash was dangerously...

Business owners with good cash management habits are more likely to have a growing, successful business. They have more control over their business’s cash and more time to grow their business by focusing on their business’s unique value-added products and services.

Here are ten (10) habits you can adopt to help put your business on cash management auto-pilot.

The 10 Cash Management Habits

1. Maintaining up-to-date bookkeeping
2. Keeping accurate books and records
3. Structuring a chart of accounts for meaningful reports
4. Measuring the impact of increasing sales
5. Using cash management tools
6. Working with a cash management dashboard
7. Addressing cash shortages immediately
8. Spending regular, focused time on cash management 
9. Maintaining a positive attitude
10. Asking for help when needed

Habit 1: Maintaining Up to Date Bookkeeping

Up-to-date bookkeeping is critical for knowing where your cash is, where more cash is coming from, and where it needs to go. In other words: bank...

A business owner’s mindset about cash management is the difference between having enough cash and struggling to meet expenses every day.

When I meet a business owner who struggles with cash flow, I ask, “Tell me about your business?” They can say whatever first comes to mind, and they usually tell me the good things, starting with whatever their business is known for and what’s going well.

• “Our unique products are awesome! We can’t make enough!”
• “We carry the best selection in the area and have service to back up the sales.”
• “We have a contract with the power company that others would kill for.”
• “Our systems can handle a lot more volume. We’ve figured this out to the last detail.”

People talk forever about the wonderful parts of their businesses. Those areas that the business was built around- marketing, products, software, services… anything that helped them grow sales.

The One Thing that...

I love seeing the wide variety of businesses around the world. It’s one of the reasons that I enjoy working with small to medium sized businesses – there is so much variety and so many ways that people have figured out how to make money. I get jealous that I don’t get to work in many of the businesses that I learn about. They are so innovative, and it seems like it would be so fun to be part of the team!

These companies generally have:

• Innovative products and services
• Great demand generation marketing
• A good sales team to grow revenue
• Operational excellence that is generally close to the skill of the founder

After that the business usually has weak spots. They generally lack systems and operations throughout the company that will allow them to scale. Especially when it comes to accounting, finance, and cash management.

Between my experience and the conversations that I’ve had with accountants and business consultants, I’m convinced that 90% or more of...

When you are looking to fix your cash management issues, don’t just look at the symptom. If you don’t dig past the symptoms you are seeing at the surface of a problem, you probably don’t know what your real problem is.

Most of the time when I am asked to come in and resolve issues, I am asked to fix the symptoms of a business’s troubles.

• “I need good job descriptions, so the business runs smoother.”
• “Help me get a loan so I have more capital.”
• “I have a lot of profits. Help me find more cash.”
• “Would you be my part-time CFO, so I can get my finances organized and we can grow again?”

People don’t realize that the symptoms they see and keep them awake at night, are not the real issues that need to be fixed. They try to get rid of the immediate pain and often try short-cuts that do more harm than good.

When I was Leaking Water instead of Cash

Let me tell you a quick story that will give you a better idea...

I love seeing the wide variety of businesses around the world. It’s one of the reasons that I enjoy working with small to medium sized businesses – there is so much variety and so many ways that people have figured out how to make money. They are so innovative, and it seems like it would be so fun to be part of the team!

These companies generally have:

• Innovative products and services
• Great demand-generating marketing
• A good sales team
• Operational excellence that is generally close to the skill of the founder

After that the business often has weak spots. They generally lack systems and operations that will allow them to scale, especially when it comes to accounting, finance, and cash management.

Between my experience and the conversations that I’ve had with various accountants, bookkeepers, and business consultants, I’m convinced that 90% or more of small and medium sized businesses don’t have good financial management. This includes basic...