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:
Step 1: Put your bookkeeping in order. Create a solid foundation.
Most businesses without a professional controller will have significant errors in...
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
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.
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. They are so innovative, and it seems like it would be so fun to be part of the team!
These companies generally have:
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...