I’ve researched online resources to help you manage your cash flow, and I found 99% of the help out there makes it too complicated. For most of us, cash flow management for our businesses is not rocket science.
The danger of over-complicated cash flow management systems is that you won’t use them. You won’t use them because it takes too much time to input the numbers and/or it’s so accounting-centric it’s like working in a different language. In my 25 years of helping small businesses with accounting, I find that most of you are not “numbers people.” You are successful and brilliant at your trade, and you started a business so you could work with your passion, not crunch numbers. You generally don’t want to spend a lot of time in the weeds. You want an accurate view of the forest so you can make solid and quick decisions about operations and cash flow. When accountants and consultants attempt to help your business with cash flow, we need to produce usable information taking into account the user.
Most cash flow management videos on YouTube are nothing more than an Accounting 101 course on the traditional Cash Flow Statement. A Cash Flow Statement is not a tool, it’s static and reports old information. It may help answer the question of “Hey, where did my cash go," but generally it's only used by accounting nerds and banks.
In order to effectively manage and master your cash flow, you need tools to track what’s happening with cash on a weekly and daily basis. You also need tools that show you different cash flow positions based on different scenarios. You need to know if you can make payroll on Friday. You need to know if you can purchase a new piece of equipment for cash. You need to know if you should borrow money from your brother. You need real information for the real world.
Another shortcoming I see online is cash flow consultants offering a traditional Cash Flow Forecast Report as a cash management solution. A Cash Flow Forecast is only that - a forecast. It’s also cumbersome to complete and contains a lot of detailed information. What happens when things change three days into the forecast period? Who has time to update the entire Cash Flow Forecast Report every time something changes? You need a tool that is dynamic and that can predict ending cash flow in under a minute. You need to be able to change a few key numbers and see what’s going to happen to your cash.
The secret to successfully managing and leveraging cash flow is two fold: 1) stay engaged with what’s happening with your cash and 2) know what situations drain your cash and how to manage those situations. That’s it. Fancy reports and columns of numbers won’t help you. Tools and information that help you engage with your situation and provide action-based solutions are your best bet. These kinds of tools will allow you to leverage your cash flow so you can grow your business and keep your profits in your bank account.