When investigating the business and financial side of things; there are so many figures to look at. Which number is the most significant one you should monitor with regard to your business and ensure profits for your family’s future?
The majority of my clients opened their business because they were spectacular at what they did, but they weren’t businessmen or women by training. As a result, even when things seem to be flourishing, the money isn’t accumulating in their personal portfolio (Or there is no portfolio).
They knew exactly how to please their patients/clients/customers/
Here are two brief horror stories to increase your zeal for regularly checking the numbers!
- Money “pits.” In my practices and businesses, as well as with the various people I have coached, I have learned of holes in billings and collections or issues with inventory control that have been costing hundreds, thousands, or even tens of thousands of dollars each month for many years. In looking back, we often do the math and the amount of money that has been lost could solve world hunger. For others, it would’ve been the difference between small paychecks and a figure that could have been better taking care of their family.
- Theft. Getting robbed or robbing yourself. One of my earliest clients had been doing very well in his business for years—or at least his office manager had. My client could not figure out how such a thriving practice had had such moderate profitability. After we started this weekly financial process, we unearthed the reality that his manager, who was his cousin, had stolen over $1 million through a scheme plotted out over several years.
Take a Bite Out of Crime – Even if you’re robbing yourself!
It is hard to steal from businesses whose managers regularly review the bank statements, cash at hand, P&L accounts, and manage their QuickBooks. Managers who are not keen with their businesses incur losses due to theft and mismanagement of funds. It’s just like the saying, “It’s not hard to steal a nut from a blind squirrel”!
Even if your team is trustworthy, as most are, by not looking, you’re also robbing yourself blind. Delayed correction in areas of money add up to fortunes over time.
Cash vs. Cash Flow
Cash flow is the lifeblood of every business.
Profit and cash flow can be two different things if you are not taking into account payables that do not apply regularly. A monthly P&L, for example, may show that you profited $10,000. Many entrepreneurs look at that as free cash and may spend it on bills or a new Ferrari.
What you may miss are those quarterly, annual, or semiannual taxes, vendor payments, insurance bills, and other items that are not accounted for every month.
At a dental office I consulted for, the dentist revealed that they considered their billings to be real cash and looked at any money left over at the end of the month as free cash. Then, on a regular basis, the poor dentist kept getting hit with bills, surprises, and the financial realities of maintaining equipment. He would have to pull from holy, untouchable resources like personal savings and personal credit cards to pay the bills. He could not figure out why his net worth was on a downslide despite a fairly successful dental practice. The sad part again, he still has to work his tail off to survive and he’s into his mid-60s.
Entrepreneurs and employed people should amortize annual costs into their monthly P&L account or look at an accounting of these items alongside that P&L to avoid getting the shock of cash versus cash flow.
Cash flow is what really remains after every debt or bill, or after the price of doing business is paid. Focus on that number—it’s the only real one! THEN – PUT IT INTO YOUR INVESTMENT MACHINE (We’ve discussed the “Investment Machine” in other blogs.)
Do you need help with these steps? Click here.
Use Good Stewardship in Small Things and Reap a Big Reward
Dr. Ben
