Cash Flow Problems Don't "Just Happen"
By Philip Campbell

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.

One thing I want to help you to see is that a cash flow
problem can almost always be seen far in advance - far
enough in advance to do something about it.

It is a myth (I'm trying to put this as politely as
possible) to think that cash flow problems "just happen".
Rarely is a cash flow problem a sudden event.  It is almost
always something that accumulates over a period of time.

And it is not difficult to see it coming.

Joe Frazier, the famous boxer, said this: "The punch that
knocks you out is the one you didn't see".

What Joe Frazier was saying is that in boxing, if you see
the punch coming, you have a chance to react.  You have a
chance to get out of the way.  You have a chance to at least
"roll with the punch".

It's when you don't see the punch coming that you get
knocked out.

In business, if you don't see a cash flow problem coming,
then you don't see it until the problem has arrived on your
doorstep. Most people don't have a good view into what their
cash balance is going to be so the problem smacks them on
the side of the head without warning.

That's how businesses are ruined.

Even if you believe you will have a cash shortage in the
future, you still must see it - in advance.  You must see it
clearly for what it is, how much it might be, and precisely
when it is likely to happen.

Then you can plan in advance exactly what you need to do to
head off the punch before it lands on the side of your head.

You can't have the punch show up at the last minute, when
you didn't see it coming.  This kind of surprise blow will
knock you out.  It could be the kind of blow that ruins your
business.


THE ALL-IMPORTANT CASH FLOW QUESTION


The most important single step you can take to head off a
possible cash flow surprise is to ask and answer this very
simple question:

What do I expect my cash balance to be six months from now?

Answering this question will force you to "focus forward".
It will force you to look at your business in a new and
revealing way.

It will pull you out of the past and into the future.

The key to answering this question is having a monthly cash
flow projection for your business for at least the next six
months.  A schedule that shows your projected revenues and
expenses in the context of your beginning and ending cash
balance for each month.

I can't stress enough how critical this is to really taking
control of your business… and your cash flow. It's hard to
overstate just how important this is to everything you do in
your business.


YOUR FINANCIAL STATEMENTS ARE NOT THE ANSWER


A cash flow projection is very different than the basic
financial statements you use to manage your business each
month.

The standard financial statements that all businesses use
are not adequate for answering this question. Financial
statements are always historical, meaning they're always
presenting what happened in the past.

They are a bit like the rear view mirror in your automobile.
The rear view mirror is very helpful when you need to see
what is behind you.  However, when you are driving down the
highway, your focus needs to be on what's in front of you.

An occasional glance in the rear view mirror is all that's
required.

You have to have a good clear view of what's ahead of you in
order to get where you are going safely.  Look in the rear
view mirror for too long and you will soon be crashing into
something in front of you.

Cash flow projections provide the visibility you need to
avoid cash flow problems.


CREATING PEACE OF MIND


Remember, cash flow problems don't "just happen".  They can
almost always be seen long before they ever happen.  Your
job is to know what you expect the cash balance to be six
months from now. That way you're in control of your business
and your cash flow.

Use cash flow projections to make sure a cash flow problem
never catches you by surprise. They will provide you the
peace of mind that comes from knowing you have your cash
flow under control.

You CANNOT run your business successfully without them.


Philip Campbell is a CPA and the author of the book:
"NEVER RUN OUT OF CASH, The 10 Cash Flow Rules You Can't
Afford to Ignore". Philip has helped hundreds of business
owners take control of their cash flow.  You can learn more
about taking control of your cash flow and eliminating your
cash flow worries at http://www.neverrunoutofcash.com.