Cash is the lifeblood of the business. Without it, you can’t pay bills, you can’t expand the business and you can’t pay employees. Most importantly as the business owner, you can’t even pay yourself!
Your business can show the most fantastic performance according to the income statement, with huge profits and yet have nothing left in the bank. In this situation your business would not survive. How could this occur? It could occur if you are not monitoring the cash flows of your business.
It is scary to me how many business owners cannot read their own company financial statements let alone understand them. Any business owner who wants to grow their business should have at least a basic understanding.
So here we go:
The two basic Financial Statements are the Balance Sheet and the Profit & Loss Statement or P & L.
A couple of years ago, I was retained to help a struggling business regain its profitability. After six days, I told the CEO that the problem was not sales-related. The problem was too much overhead and debt. The CEO disagreed with my assessment – and to my great relief my contract was quietly terminated. The company went out of business eight months later.
Running a debt-free business is probably contrary to everything that you have ever learned. And you might wonder why you should do it.
Every business needs to use software to help maintain and run its’ processes. However, sometimes people get lost in the truth that the software is just tool created by people – Humans.
When there are situations that require some creative or (dare I say) even logical thinking, I am often perplexed when I hear the words “Well that is what the computer says.”
Here is why software alone does not lift your business: