In Part 3 of this blog post series on making cash flow simple and easy to understand, I talked about a VERY different approach to defining cash flow. It is an approach where I take my CPA and CFO hat off and speak in a common-sense language that everyone can relate to.
Here is how I define cash flow – Cash flow is happiness! And we measure it on a scale of 1 to 10. Sound crazy? Maybe. But this process for rating your cash flow is fast and fun… and will do wonders to help you create confidence and peace of mind in business. 😊
In Part 2 of this blog post series, I showed you that “cash flow” is not a single number on your financial statements. And I talked about why now is the time to totally rethink (and greatly simplify) how you understand and manage cash flow in your business.
In Part 1 of this blog post series, I shared the surprising results of my super-short survey that asked “How do YOU define cash flow in your business”?
In this post, I will show you a unique, you will never see this from your bookkeeper or accountant, tool that gives you a fun new superpower.
It’s the Cash Flow Focus Report.
The Cash Flow Focus Report is VERY Different
I developed the Cash Flow Focus Report to provide a simple, common sense approach to understanding your cash flow that takes 10 minutes a month. It brings focus to your cash flow, simplifies your life, and leads to an understanding and sense of confidence that you will find freeing.
If I work in a business, or I’m a shareholder, I create the focus report every single month. I also create the focus report if I am looking at making an investment in a company (public or private).
It’s a super-simple way to understand the drivers of cash flow and help you keep your finger on the pulse of your company’s cash flow. The focus report is designed to help you answer this ONE question every month:
“What caused the change in cash?”
One of the beauties of asking a simple question like that is it deserves a simple answer (and very little work to arrive at the answer).
“If you can’t explain it simply, you don’t understand it well enough.”
Here is a super-fast approach to understanding your cash flow. The simple monthly process works like this:
Rate the quality of your cash flow on scale of 1 to 10. Ask yourself: “On a scale of 1 to 10, to what degree am I happy (satisfied) with my cash flow last month?” Where 1 is very unhappy (dissatisfied) and 10 is very happy (satisfied).
To rate the quality of your cash flow you need to answer these two questions:
- How much did the cash balance change?
- What caused the change?
The Cash Flow Focus Report is the tool for answering these two questions.
The Cash Flow Focus Report
The Cash Flow Focus Report uses a common sense set of principles to create a simple presentation of cash flow. It provides the structure and format to help you keep it simple and prepare it in 10 minutes or less.
The focus report is designed to simplify the process (so it only takes 10 minutes a month) and provide insights about your cash flow that are easy-to-understand (so you can explain what happened to the cash in a 2-minute conversation).
The focus report is based on these principles.
- The focus report is a super-condensed, “let’s keep it simple”, view of cash flow derived from your financial statements. It is not a cash in and cash out approach to understanding cash flow. (You will be surprised how fast this approach will demystify your financial statements. Your financial statements are about to become much more useful and insightful for decision making.)
- It can fit on a small postcard (or even a Post-It note) so it helps keep the work to 10 minutes or less. (I prefer the spreadsheet version though so I can easily save it each month. Stay tuned for an app version coming soon.)
- It provides three rows so you can enter the three largest changes in your cash for the month you are looking at. (Focusing on the three largest changes in cash is the secret to this recipe.)
- It provides a small space for you to write a one-line explanation about what caused the change in each of the three largest drivers of cash. (This helps you keep it simple and provide an answer you can relate to.)
- You evaluate and write down whether each change is good or bad. (Not all changes that reduce cash are bad and not all changes that increase cash are good.)
Once you complete the Cash Flow Focus Report for the month, then you write your 2-minute conversation that quickly describes what happened to the cash last month.
Then you provide your Cash Flow Happiness rating for the month on a scale of 1 to 10.
And our mission in this process each month is to get the time spent doing it to 10 minutes or less. That might sound like a tall order, but it can be done. I know. I do it all the time. 😊
The What and How of Understanding Your Cash Flow
Another way to look at the process for rating your cash flow each month is to consider the what and the how of the process.
Question: What do I do each month to understand my cash flow?
Answer: Rate the quality of your cash flow on scale of 1 to 10.
Question: How do I rate the quality of my cash flow for the month?
Answer: Complete the Cash Flow Focus Report then write your 2-minute explanation.
The process is straightforward and to the point. And the goal is to complete this process in 10 minutes or less each month.
Here’s Why Cash Flow Has Always Been So Confusing
I learned early in my career as a CPA and a CFO that the secret to making cash flow easy to understand, was to simplify it down to a non-accountant, simple, common sense message that a business owner can easily relate to. But that is not something that we are taught as accountants in school. I learned that the hard way. 😊
In my next post, I will share with you why cash flow has always been so confusing and complicated for business owners.
Understanding each of these factors will help you see the Cash Flow Focus Report is so different from what you have ever seen.
Philip Campbell is an experienced financial consultant and author of the book A Quick Start Guide to Financial Forecasting: Discover the Secret to Driving Growth, Profitability, and Cash Flow and the book Never Run Out of Cash: The 10 Cash Flow Rules You Can’t Afford to Ignore. He is also the author of a number of online courses including Understanding Your Cash Flow – In Less Than 10 Minutes. His books, articles, blog and online courses provide an easy-to-understand, step-by-step guide for entrepreneurs and business owners who want to create financial health, wealth, and freedom in business.
Philip’s 35 year career includes the acquisition or sale of 35 companies (and counting) and an IPO on the New York Stock Exchange.
Understanding Your Cash Flow – In Less Than 10 Minutes
This online course teaches you the step-by-step process for simplifying your cash flow. I walk you through each lesson while you watch, listen, read and try it yourself using your own cash flow numbers.
The course is very affordable. And there are also some coaching options available if you would like to get up and running fast.
It’s a fantastic way to learn the process.
I take all the risk out of your purchase because I include a 100%, no questions asked, money-back guarantee. You love it or you get your money back in full. Period.
There are two things that are very unique and exciting about this online course.
1. I’ll show you how to understand your cash flow in less than 10 minutes
2. I’ll show you how to explain what happened to your cash last month to your business partner or banker (or maybe even your spouse) in a 2-minute conversation.
I take off my CPA hat and I speak in the language every business owner can relate to. No jargon. No stuffy financial rambling. Just a simple, common sense approach that only takes 10 minutes a month.
Here is how one business owner describes the benefits of the course.
“I googled cash flow projections and found your website online and it appealed to me mainly due to the fact that you speak in laymen’s terms in a way that a non-financially trained person can understand.
The fact that you said you can understand your cash flow in less than 10 minutes a month was also a big reason I bought it. And the fact that you acknowledge that most accountants and CPA’s speak in terms that the normal owner cannot understand and that you would be able to put things in understandable terms really got me.
The monthly cash flow focus report was the best feature for me because learning to do it helped me understand my cash flow statements and the biggest drivers of cash flow.
Another significant benefit is the definitions of cash flow drivers and descriptions of how a negative or positive sway in cash within those drivers affects cash flow. Being able to see at a quick glance monthly what happened to your cash using the focus report is a huge benefit.”