“The fact is that one of the earliest lessons I learned in business was that balance sheets and income statements are fiction, cash flow is reality.” – Chris Chocola
You know how much cash your business has in the bank right now, but how much will there be in a week? How about in a month?
If your business is an engine, cash is the oil lubricating it. If the cash dries up, it seizes. That’s why being able to anticipate our cash position is so important.
A 13-week cash flow report is a simple tool that you can use to predict and react to pending cash pressures. If your business is struggling (as so many are), this is vital. If your business is healthy, this report will make it healthier.
In our next 2 blog posts, we’re going to introduce the 13-week report as a tool and tell you exactly how to create and use it.
Why 13 Weeks?
We typically know what our cash flow is for 2 time periods: the past and the year ahead. Unfortunately, the past is the past and the year ahead tends to get abstract. It’s a big chunk of time, and so much will happen that it’s difficult to accurately predict more than a few months ahead. (We learned that all too well back in March.)
On the other hand, very few businesses have a stable cash flow week-to-week. One week the payables come in and it’s Christmas, and the next week is payroll and suppliers’ bills.
13 weeks, being a fiscal quarter, is the “Goldilocks” middle ground. It’s meant to provide enough time to iron out the ups and downs, but not so long that we need to speculate madly on what will happen 6 or 9 months away.
Why is this Useful?
First and foremost, you’ll be able to anticipate cash crunches more accurately and have the time to react to them. But watching your cash is about more than vigilance; it’s about focusing on what matters in your business financials.
We often get caught up in past costs, inventory, and other abstractions. Cash is a number that is real, present, and brutally honest. It’s the boiled-down truth of our businesses and we need to think about it more.
Be Honest (With Yourself)
It’s awful to bleed cash from a business you’ve poured your time, heart, and energy into. It’s even worse if you’ve invested your equity as well. But pretending it isn’t happening when it is won’t help anything – not a bank in the world accepts wishful thinking…
Doing these cash flow reports will keep you aware of how your business is really doing: the numbers go in, ugly or not. Having this kind of accurate information is the baseline you need to think strategically about your next move and to start moving your team in the right direction.
How to Build It, Step by Step