What do you expect your cash balance to be six months from now?
This one question can transform the way you manage your business from this point forward.
The reason this question is so powerful is because it reveals whether you are managing your business or whether your business is managing you. And there is a huge difference between the two.
When you answer this question with "I don't know," then you are headed down a path that could lead to the failure of your business. You are allowing the business to manage you rather than you managing the business. You're playing with fire.
You absolutely, positively cannot run a business and not know what you expect the cash balance to be. You will end up wasting your valuable time worrying and stewing over what may or may not happen.
Remember, cash is the lifeblood of the business. If the cash ever runs out, then your entire business goes down the drain. You have to know what the balance is now and what you expect it to be six months from now -- period.
There are four very important benefits you will realize from knowing the answer to this critical cash flow question.
Having Cash Balance Goals. Your goal is to make money. If you are not generating cash in your business, then you are not achieving the objective. In fact, the ultimate measure of your success in business will be determined by how much cash you create and how much of that cash you hang on to.
Therefore, you must have a goal for exactly what you want your cash balance to be.
Having specific cash balance goals will solidify in your mind exactly what you need the business to do for you financially. Your focus on cash will have an amazing impact on your ability to create a business that takes care of you financially. And that's the objective, right?
Seeing Problems Before They Happen. Joe Frazier, the famous boxer, said "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, you can't have a punch (a cash flow problem) 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.
Creating a Plan and Putting It to Work. To know you have a possible cash flow problem is not enough information to get you to a solution. You have to know how much of a problem you have and when it will be a problem. You have to put a dollar amount and a timeframe on the problem.
Now you can make a list specific actions steps you can take to increase revenues, reduce expenses, collect outstanding receivables, reduce inventory, reduce capital expenditures, restructure debt obligations, etc. This helps you focus on creating a very specific plan so you can take action. And that's really the key to success in business.
Having Peace of Mind and Freedom From Worry. When you have concerns on your mind like, "I don't know if I can pay the bills tomorrow, I don't know if I will be able to meet the payroll next Friday," then fear and panic begin to set in.
Your ability to focus on fixing the problem is severely minimized. Worry and concern will drain you of energy and divert your mind from getting things done.
It's like pouring sand in your car's engine. Bad things happen. The faster you try to go, the more damage you do to the engine. Your productivity and effectiveness come to a grinding halt.
On the other hand, when you know what your cash balance is expected to be, your mind is free from worry and concern. You have a clear view of what is coming. You can act with confidence on your business plan knowing where you are going and how you will get there.
In my next column, I will share with you the secret to creating cash flow projections you can trust. Cash flow projections will show you what your cash balance is expected to be over the next six months. Once you begin using this powerful tool in your business you will never want to be without them ever again.