According to U S Bank, 82 % of small businesses fail because of poor cash flow management and a lack of understanding of financial reports.
Whether you are thinking of starting a business, or looking to grow your business, there is no question on whether cash is essential for success. But that’s not the question. The real question is can cash be managed?
The simple answer is “yes,” as long as your bank or other funding partner is willing to loan you money to cover cash shortages that you might not be able to explain in sufficient detail. If you are still unsure if cash flow can be managed, take a look at your bank balance and then write down which of your chart of accounts contributed to the balance.
Did the business meet its sales plan, and are the gross and net profit margins enough to sustain the business? Then ask yourself, did the business overachieve or underperform and which accounts contributed to the ending balance.
In my view, cash is not managed because it is the result of many accounts that can be managed. If you want to be in the 18 percent of businesses that succeed, pay close attention to your chart of accounts and how money is spent. Your cash account is an indicator of how well you have built a budget, controlled spending, allocated costs to each item sold, have developed an advertising and social media plan, understand your customers and the competition, and differentiated your company from the competition.
Keep in mind that cash needs to be looked at daily. Looking at your cash flow on a monthly basis significantly increases the failure rate and delays identifying problems for potentially 30 days resulting in more serious financial difficulty. All of the cash decisions that you make throughout the month affect cash flow.
Help is available at no cost at the Coastal Entrepreneurship and Innovation Institute and SCORE. Think of the plan as a financial roadmap – you will always know how the business is performing throughout the month based upon your actual data allowing you to make plan adjustments.
As a business owner, you have many responsibilities although none more important than understanding your financial statements and managing cash. If you need help, contact me at firstname.lastname@example.org. At the Coastal Institute, we work to help small businesses and you never pay for our services whether your business is in Florida or any other state. You have nothing to lose and everything to gain. Don’t become a poor cash-flow statistic. Your business matters to you, your employees, and more importantly, your customers.