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A Super-Fast Way to Understand Your Cash Flow – An Example Using a Real-Life Company

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I developed the Cash Flow Focus Report to provide a simple, common sense approach to understanding your cash flow that only 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.

The very first thing I do when looking at a company for the first time is create the Cash Flow Focus Report. If I work in the 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 I use to understand the drivers of cash flow and keep my finger on the pulse of the company’s cash flow.

At the heart of the focus report is to answer this ONE question:

“What happened to the 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). As Albert Einstein said:

“If you can’t explain it simply, you don’t understand it well enough.”

In my view of the world, that ONE question is the single most important question to help me understand what makes a company tick financially. Cash is the real bottom line in business. And this ONE question helps me quickly understand “what’s going on with the cash.”

An Example – Scott’s Liquid Gold, Inc.

I came across a public company recently, Scott’s Liquid Gold, Inc and decided learn more about the company and determine whether I wanted to invest in the company and become a shareholder. Step 1 was to look at their most recent financial results and answer THE question:

“What happened to the cash last year?”

I pulled up a blank Cash Flow Focus Report and got started on answering that question for 2018. Here is what the completed focus report looked like.

There are 4 steps to creating the Cash Flow Focus Report.

  1. Drop in the beginning cash balance and the ending cash balance
  2. Identify the three largest changes in cash
  3. Write a one-line explanation of the change
  4. Determine whether each change in cash is good or bad

I grabbed the Company’s Statement of Cash Flows for 2018 and got started.

Here is a short discussion of the three largest changes, or drivers, of cash for 2018 together with the one-line description of each change and my rationale for labeling each change as good.

Net Income
The company made $2.2 million in 2018 (after income taxes). That’s about 6% of sales. Not too shabby. Problem is their net income last year was $4.7 million. That means net income this year is down about 52%. The press release that accompanied the 2018 financial results included a comment from the CEO Mark Goldstein, that said “We experienced sales challenges in December after a strong start to the quarter and several of our mass retail and specialty channel customers began to aggressively reduce inventory levels earlier than their historical patterns.” In deciding to label this change as either good or bad, I would normally look at the forecast or the budget for profitability to see if the $2.2 million is line with expectations and strategy. In this case, absent having access to forecast or budget numbers, I labeled it as good because net income of 6% of sales is not too shabby. (The big question is which direction net income is headed for the coming year.)

Debt Reduction
The second largest change, or driver, of cash in 2018 was a $1.2 million reduction of debt. They paid off all their debt this year (some of it early). They have zero debt now on their balance sheet at the end of 2018. I almost labeled this change as fantastic rather than just good. 😊 I’m a big believer that reducing debt is critical to managing a business well.

Inventory
The third largest change in cash was a $970k reduction in inventory. Reducing inventory frees up cash so the change is added back to cash for 2018. My assumption is they reduced inventory, at least in part, in response to lower sales during the fourth quarter. They also mention in the press release that they are “focused on reducing inventory levels.” They have almost 137 days of inventory on hand, so I applaud their focus on reducing inventory. I labeled this change in cash as good since the reduction is in line with lower sales and it appears on the surface that they need to reduce inventory.

The 2-Minute Conversation

Once I create a Cash Flow Focus Report, my next step is to articulate the “2-minute conversation.” Assume you are about to sit down with your banker, or your business partner, or an investor (maybe even your spouse).

You have 2-minutes to briefly explain to them “what happened to the cash.” Not the nitty-gritty-greasy-grimy details. Just a short, big picture discussion about the company’s cash flow that enlightens the people you are talking to.

The goal of the 2-minute conversation is to provide them that understanding… while also demonstrating to them that you know what’s going on in your business. (Imagine their horror if they discovered that you, the person running the business, didn’t know what’s going on with the cash flow!)

Here is my version of the 2-minute conversation for Scott’s Liquid Gold’s 2018 financial results:

“Cash increased during the year by $2.1 million. Net income was down significantly from the prior year but still came in at $2.2 million (6% of sales). Inventory was reduced by almost a million dollars, partly in response to lower sales and profit for the year. $1.2 million was used to pay off all the debt, leaving a cash balance at the end of the year of $6.2 million.”

Summary View of Cash Flow Over the Last Five Years

I also like to look at a summary view of cash flow over the last five years or so to learn about the financial history of the company. This is a great way to see a financial overview from a big picture, “what’s going on with the cash”, perspective.

Here are some observations about their cash flow over the last five years:

  • In 2015, the big jump in net income is primarily driven by the reversal of a reserve on their deferred taxes. The offset, since this was a non-cash adjustment, is in the deferred tax line. The deferred taxes relate to accumulated losses in prior years that they expect to use to offset income taxes in future years (which you can see in years 2016 through 2018).
  • In 2016, the company purchased certain assets from Ultimark, including the Prell, Denorex and Zincon brands of hair and scalp care products. The purchase price was $9.0 million (paid in cash). The purchase included $400k inventory, $7.1 million of intangibles, and goodwill of $1.5 million. They borrowed about $2.4 million to help fund a portion of the acquisition.
  • In 2018, net income was down about 52% from the prior year. The reduction was partly driven by lower sales in the fourth quarter. They paid off the remaining debt from the 2016 acquisition and the cash balance ended the year at $6.2 million.

The History of the Company

In 2016 Scott’s Liquid Gold celebrated its 65th anniversary. Very impressive.

Here is a summary from their blog:

“Owning a family business in America is a bit of a paradox.  Family businesses make up more than 80 percent of all American businesses.  Only 30% percent of family businesses, however, survive into the 2nd generation.  And less than 12% survive into the 3rd generation according to the Family Business Institute. Scott’s Liquid Gold is one of the 12% that is still going strong well into the third generation!

Ida Goldstein, a widow with three sons bought the formula for Scott’s Liquid Gold for $350 in 1951.  Her oldest son, Jerry, took the lead with the family business. For the next 49 years, he went on to build a trusted brand and thriving business. Jerry’s son, Mark, began working with his father after graduating from Syracuse University in 1978. Jerry and Mark worked together for the next 22 years until Jerry’s death in 2000. Today, Mark continues at the helm as President and CEO.”

Scott’s Liquid Gold, Inc. develops, manufactures, markets and sells household and skin and hair care products. The Company operates through two segments: household products and skin and hair care products.

The Company’s products include Scott’s Liquid Gold, its wood cleaner and preservative; Alpha Hydrox, its skin care brand; Neoteric Diabetic product, which is specially developed to address the skin conditions of persons living with diabetes; Montagne Jeunesse face masque sachets, which are manufactured by another company and distributed by it in the United States, and Batiste Dry Shampoo, which is manufactured by another company and distributed by the Company to the specialty retailer channel in the United States.

The products in the household products segment include Scott’s Liquid Gold Wood Cleaner and Preservative; Scott’s Liquid Gold Floor Restore; Scott’s Liquid Gold Wood Wash; Scott’s Liquid Gold Dust ‘N Go Wipes, and Touch of Scent Air Freshener.

Big Picture Facts

Here are some interesting facts about the company:

  • 27% of sales are to Walmart. 24% of sales are to Ulta.
  • Their primary brands are Scott’s Liquid Gold, Alpha Skin Care, Prell, and Denorex. They also act as the exclusive distributor of products in certain markets. These products include 7th Heaven by Montagne Jeunesse and Batiste Dry Shampoo.
  • The skin and hair care products portion of the business represents 86% of sales. Household products represents 14% of sales.
  • The Scott’s Liquid Gold product has been declining. They have been working hard to bring new products to market to help offset that portion of the business.
  • They have 74 employees and are based in Denver, CO.
  • They are a public company with about 650 shareholders.
  • Mark Goldstein, the CEO and a member of the Founding family, owns (directly or indirectly) about 25% of the outstanding common stock.

What is The Big Picture View of Your Business?

I encourage you to walk through this same kind of big picture financial and cash flow review for your business. Business owners  are always amazed at what they learn in this exercise. The numbers, the cash, almost always tells a different story than what the owner or CEO thinks has happened over the years.

Remember, the real bottom line in business is cash! Knowing what’s going on with the cash is a requirement in business. The penalties for not paying attention to the cash can be huge… and incredibly painful.

Here is a link to my post that provides the step-by-step guide to simplifying your cash flow with the Cash Flow Focus Report.

Philip Campbell is a 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 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

Understanding Your Cash Flow – In Less Than 10 Minutes

cash-flow-webinar-larger

This online course goes deeper into the Cash Flow Focus Report and 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.”

Click Here to Learn More about the Cash Flow Course

Warren Buffett’s View on Businesses – The Great, the Good and the Gruesome

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In Warren Buffett’s 2007 Letter to Shareholders of Berkshire Hathaway, he included a section where he shared his and Charlie Munger’s view on the characteristics of a great business, a good business, and a gruesome business.

Take a few minutes to read their description of each type of business. Then consider which category your business fits in. There are very important ramifications for how your business should be managed (financially speaking) depending on which category your business falls into.

Below is the section from Buffett’s 2007 Letter to Shareholders.

“Let’s take a look at what kind of businesses turn us on. And while we’re at it, let’s also discuss what we wish to avoid.

Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag. We like to buy the whole business or, if management is our partner, at least 80%. When control-type purchases of quality aren’t available, though, we are also happy to simply buy small portions of great businesses by the way of stock market purchases. It’s better to have a part interest in the Hope Diamond than to own all of a rhinestone.

A truly great business must have an enduring “moat” that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business “castle” that is earning high returns. Therefore a formidable barrier such as a company’s being the low cost producer (GEICO, Costco) or possessing a powerful world-wide brand (Coca-Cola, Gillette, American Express) is essential for sustained success. Business history is filled with “Roman Candles,” companies whose moats proved illusory and were soon crossed.

Our criterion of “enduring” causes us to rule out companies in industries prone to rapid and continuous change. Though capitalism’s “creative destruction” is highly beneficial for society, it precludes investment certainty. A moat that must be continuously rebuilt will eventually be no moat at all.

Additionally, this criterion eliminates the business whose success depends on having a great manager. Of course, a terrific CEO is a huge asset for any enterprise, and at Berkshire we have an abundance of these managers. Their abilities have created billions of dollars of value that would never have materialized if typical CEOs had been running their businesses.

But if a business requires a superstar to produce great results, the business itself cannot be deemed great. A medical partnership led by your area’s premier brain surgeon may enjoy outsized and growing earnings, but that tells little about its future. The partnership’s moat will go when the surgeon goes. You can count, though, on the moat of the Mayo Clinic to endure, even though you can’t name its CEO.

Long-term competitive advantage in a stable industry is what we seek in a business. If that comes with rapid organic growth, great. But even without organic growth, such a business is rewarding. We will simply take the lush earnings of the business and use them to buy similar businesses elsewhere. There’s no rule that you have to invest money where you’ve earned it. Indeed, it’s often a mistake to do so: Truly great businesses, earning huge returns on tangible assets, can’t for any extended period reinvest a large portion of their earnings internally at high rates of return.

Let’s look at the prototype of a dream business, our own See’s Candy. The boxed-chocolates industry in which it operates is unexciting: Per-capita consumption in the U. S. is extremely low and doesn’t grow. Many once-important brands have disappeared, and only three companies have earned more than token profits over the last forty years. Indeed, I believe that See’s, though it obtains the bulk of its revenues from only a few states, accounts for nearly half of the entire industry’s earnings.

At See’s, annual sales were 16 million pounds of candy when Blue Chip Stamps purchased the company in 1972. (Charlie and I controlled Blue Chip at the time and later merged it into Berkshire.) Last year See’s sold 31 million pounds, a growth rate of only 2% annually. Yet its durable competitive advantage, built by the See’s family over a 50-year period, and strengthened subsequently by Chuck Huggins and Brad Kinstler, has produced extraordinary results for Berkshire.

We bought See’s for $25 million when its sales were $30 million and pre-tax earnings were less than $5 million. The capital then required to conduct the business was $8 million. (Modest seasonal debt was also needed for a few months each year.) Consequently, the company was earning 60% pre-tax on invested capital. Two factors help to minimize the funds required for operations. First, the product was sold for cash, and that eliminated accounts receivable. Second, the production and distribution cycle was short, which minimized inventories.

Last year See’s sales were $383 million, and pre-tax profits were $82 million. The capital now required to run the business is $40 million. This means we have had to reinvest only $32 million since 1972 to handle the modest physical growth – and somewhat immodest financial growth – of the business. In the meantime pre-tax earnings have totaled $1.35 billion. All of that, except for the $32 million, has been sent to Berkshire (or, in the early years to Blue Chip). After paying corporate taxes on the profit, we have used the rest to buy other attractive businesses. Just as Adam and Eve kick-started an activity that led to 6 billion humans, See’s has given birth to multiple new streams of cash. (The biblical command to “be fruitful and multiply” is one we take seriously at Berkshire.)

There aren’t many See’s in corporate America. Typically, companies that increase their earnings from $5 million to $82 million require, say, $400 million or so of capital investment to finance their growth. That’s because growing businesses have both working capital needs that increase in proportion to sales growth and significant requirements for fixed asset investment.

A company that needs large increases in capital to engender its growth may well prove to be a satisfactory investment. There is, to follow through on our example, nothing shabby of $82 million pre-tax on $400 million of net tangible assets. But that equation for the owner is vastly different from the See’s situation. It’s far better to have an ever-increasing stream of earnings with virtually no major capital requirements. Ask Microsoft or Google.

One example of good, but far from sensational, business economics is our own FlightSafety. This company delivers benefits to its customers that are the equal of those delivered by any business that I know of. It also possesses a durable competitive advantage: Going to any other flight training provider than the best is like taking the low bid on a surgical procedure.

Nevertheless, this business requires a significant reinvestment of earnings if it is to grow. When we purchased flight safety in 1996, its pre-tax operating earnings were $111 million, and its net investment in fixed assets was $570 million. Since our purchase, depreciation charges have totaled $923 million. But capital expenditures have totaled $1.635 billion, most of that for simulators to match the new airplane models that are constantly being introduced. (A simulator can cost us more than $12 million, and we have 273 of them.) Our fixed assets, after depreciation, now amount to $1.079 billion. Pre-tax operating earnings in 2007 were $270 million, a gain of $159 million since 1996. That gain gave us a good, but far from See’s- like, return on our incremental investment of $509 million.

Consequently, if measured only by economic returns, FlightSafety is an excellent but not extraordinary business. It’s put-up-more-to-earn-more experience is that faced by most corporations. For example, our large investment in regulated utilities falls squarely in this category. We will earn considerably more money in this business ten years from now, but we will invest many billions to make it.

Now let’s move to the gruesome. The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.

The airline industry’s demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it. And I, to my shame, participated in this foolishness when I had Berkshire buy U.S. Air preferred stock in 1989. As the ink was drying on our check, the company went into a tailspin, and before long our preferred dividend was no longer being paid. But we then got very lucky. In one of the recurrent, but always misguided, bursts of optimism for airlines, we were actually able to sell our shares in 1998 for a hefty gain. In the decade following our sale, the company went bankrupt. Twice.

To sum up, think of three types of “savings accounts”. The great one pays an extraordinarily high interest rate that will rise as the years pass. The good one pays an attractive rate of interest that will be earned also on deposits that are added. Finally, the gruesome account both pays an inadequate interest rate and requires you to keep adding money at those disappointing returns.”

A Fantastic Perspective on Businesses

(If you are familiar with Warren Buffett and Charlie Munger’s investments in 2018, you will notice they have become more open to investing in airline companies again. They believe that many of the over capacity issues have been resolved. Time will tell if they produce nice returns… or more gruesome losses.)

I love the way Buffett describes, and provides examples of great, good, and gruesome businesses. It provides us with a wonderful lens in which to look at our own businesses and consider how we are managing them. The three different types of businesses must be managed in very different ways.

Here is a quick way to tell which type of business you own: Does your business routinely generate excess cash?

Philip Campbell is a CPA, 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 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

This book provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better, faster, smarter financial decisions.

Too many entrepreneurs and CEOs today are feeling more like passengers than drivers in their business. They’re staring at their rearview mirror as they bounce along in the passenger seat. Their company is careening along on the highway of business as they wonder and worry about where their business might end up financially.

A reliable financial forecast solves this problem by providing a clear view through the financial windshield of your business. It creates the visibility and clarity you need to drive your company toward a bigger and brighter financial future.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

A reliable financial forecast puts the answers to these questions at your fingertips. It helps you take control of your profitability and cash flow because it gives you answers to the most important financial questions you have to deal with every day.

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Does Your Business Generate Excess Cash?

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The financial success of your company will ultimately be defined, financially speaking, as the amount of excess cash that it creates and distributes to its owners.

Generating excess cash will determine whether your business has what it takes to create Happy Owners.

The ability of your business to generate excess cash will benefit you in two ways. First, excess cash can be distributed to owners frequently. Distributions of excess cash are the return on investment you earn as an investor, an owner, of the business. You can use those distributions to invest in other assets outside your business as part of your plan for growing your personal net worth over time.

Second, if you decide to sell the business, its value will largely be determined as a multiple of the cash it can throw off to its new owners. The more excess cash your business generates, the more money it will sell for (when/if the times comes to sell the business).

Defining “Excess Cash”

The trick is defining “excess cash”. The challenge is that you can’t look at a single number on your financial statements and see a value for excess cash.

Some people believe that their “profit” can be distributed in the form of cash to the owners of the business. The logic being that sales – expenses = profit. And profit is the amount of money coming in that does not have to go out. So that must be “excess cash” that can be paid out to the owners. But that’s a big mistake.

Profit does not equal excess cash… and it does not even equal cash (whether excess or not). And there could be other obligations the business needs to pay like debt and capital expenditures (just to name a few) that require cash.

Another factor that must be considered in defining excess cash is to think about how much cash you need to have in the bank. My rule of thumb is you should always have at least one month of operating expenses sitting in the bank at any given time.

Keep it Simple

The simple way to determine whether your business is generating excess cash is to look at your cash balance on your balance sheet to see if cash is piling up every month, quarter, or year.

If cash (money) is piling up, and you are paying yourself a market-based compensation in the P&L, then there is a good chance you are producing excess cash. Of course, you need to make sure you are driving debt down and that you are investing properly in capital expenditures that are needed to sustain (and grow) your business.

Think Like an Owner and Investor

Take a few minutes this week to look at your cash flow from a big picture, cash flow perspective.

Question 1 is to determine whether your business is a net creator of cash, or a net user of cash.

Question 2, assuming you get the correct answer above 😊, is to determine the amount of excess cash that you can distribute to the owners of the business.

If you don’t like the answers you get, then it’s time to think seriously about setting 1 to 3 specific goals around improving your profitability and cash flow. The Monthly Financial Rhythm will help you make that happen.

The Cash Flow Focus Report

One of the most powerful tools for quickly understanding the big picture view of your cash flow is the Cash Flow Focus Report.

It is the simplest tool I have found to quickly get a handle on your cash flow.

If you are struggling to understand your cash flow, or determine what your true excess cash is, check out my online course on understanding your cash flow – in less than 10 minutes.

Philip Campbell is a CPA, 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 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

Understanding Your Cash Flow – In Less Than 10 Minutes

cash-flow-webinar-larger

This online course goes deeper into the Cash Flow Focus Report and 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.”

CLICK HERE TO LEARN MORE ABOUT THE CASH FLOW COURSE

Is Money Important to You?

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Here is a very short, fun survey about what money means to you.

Please take a quick minute to drop your answers into the survey below. It should take less than a minute.

Thank you. 🙂


If the survey questions are not shown in the box above, please click here to take the 1-minute survey about money.

Here are some blog posts you will enjoy if you care about money (like I do). 🙂

How Your CFO Can Use Cool Dashboards to Drive Financial Results

Cash Flow Problems Don’t “Just Happen”

The Four Hats That Every Business Owner Must Wear

Show Your Money Some Love

Profitability Margins By Industry

Business Profitability Survey Results

Check out the free member content area here for a lot more videos and tools to help you drive profitability and cash flow.

Philip Campbell is a CPA, 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 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

This book provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better, faster, smarter financial decisions.

Too many entrepreneurs and CEOs today are feeling more like passengers than drivers in their business. They’re staring at their rearview mirror as they bounce along in the passenger seat. Their company is careening along on the highway of business as they wonder and worry about where their business might end up financially.

A reliable financial forecast solves this problem by providing a clear view through the financial windshield of your business. It creates the visibility and clarity you need to drive your company toward a bigger and brighter financial future.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

A reliable financial forecast puts the answers to these questions at your fingertips. It helps you take control of your profitability and cash flow because it gives you answers to the most important financial questions you have to deal with every day.

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

How Your CFO Can Use Cool Dashboards to Drive Financial Results

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Dashboards are a powerful tool for helping your CFO turn numbers into insight.

Dashboards help take the numbers that accountants and CFOs work with every day and turn them into something more like a visual representation of the data, almost a visual story, that resonates with financial and non-financial people.

I did a fun presentation in Austin, Texas for the CFO/Controllers Conference in September 2018. In preparation for the conference, I recorded the essence of my presentation so I could share it with you online.

Business Intelligence (BI) Software is Changing Fast

In the recording, I show you some super cool changes that are going on in the world of business intelligence (BI) software that’s making it easier than ever before to create some really fun dashboards, to create some really unique, cool dashboards that get people’s attention and help CFOs drive financial improvement.

One thing that I have learned throughout my career, it is that if you really want to make a difference with a CEO or a business owner, sometimes you need to put information in front of them that almost screams out for attention.  So, when I put something in front of a CEO or a business owner, especially when I am trying to make a difference, I am trying to communicate an important point, I want them to look at it and say, “Holy cow!  This is f***ing awesome, Philip.”

“Now I understand what you have been trying to tell me over the last three months.  Now I understand what the numbers are saying and that the trend is going in the wrong direction. Now I understand what I have got to do, and what our management team has to do, in order to achieve the financial results that we are after.”

That’s what I love to hear from an entrepreneur or business owner.

CFOs can Make History… not just record it!

I believe that is important for us as financial professionals and CFOs to recognize that our real calling, our real mission, has to do with making history within an organization, not just recording it.

By making history, I am referring to our ability to kind of go past our traditional role of creating historical financial statements, the safeguarding of assets, some of the are more compliance related responsibilities, and crank it up a level to where we are really playing a more strategic role in the organization. That we are helping to create a bigger and brighter financial future for an organization, in addition to the value that we already provide.

And for me, that makes the role of CFO or advisor a whole lot more fun. It also makes it easier for us to make more money.  Because while we want to help drive financial improvement within an organization, we also want to drive financial improvement in our own personal net worth… and our own family net worth.

Here is Part 1.

 

The Possibilities Are Exciting

As you can see from Part 1 of the video, the dashboard possibilities are exciting… and endless.  We saw lots of different ways that we can hook data up and present it to people in a way that is more compelling than just providing them a spreadsheet.

And that’s helpful for financial types as well. It’s really helpful for me to see a mix of numbers and visuals of the numbers and the trends. I love it that way because it helps me find the insights hiding in the numbers.

There are also a lot of non-financial people who can relate to the data more easily when it’s presented to them in a more visual way. It presents all kind of possibilities and it makes it easier to shine a light on the metrics that matter. You have more control over how things are being presented, especially when you are doing something on a phone. It forces you to hone in on what really matters because you want to provide dashboards and financial insights that really matter and can move the needle on financial performance.

In the dashboard examples, you can’t see everything that is going on behind the scenes in terms of the automation of the data loading and cleansing process. But there are some powerful features built in that help you automate your dashboards.

Everything is moving towards more visual insights, towards more natural language processing. Dashboards are a powerful tool that every CFO and business owner should have in their toolkit.

Part 2 starts with the traditional definition of dashboard.

A traditional dashboard brings a lot of information (in a summary format) into one place.

It then makes it easy to click and drill down into more detail.  But I want to warn you about some of the challenges you are going to face in creating a traditional dashboard. When you first get started with dashboards, you want to start small. You want to create a dashboard that focuses on one or two metrics that matter to you. Don’t try to create a full-blown dashboard that tries to pull everything about an area of the business into one place.

It cranks the complexity way up and the number of data sources way up. Instead, start with something very focused and use a simple data source that you are familiar with.

Here is Part 2.

 

Remember, we are talking here about how we create cool dashboards with visuals to drive financial performance because it’s such an important part of the role and responsibility and opportunity of a CFO or finance professional. It’s about helping to make history, not just record it.

For me, doing that is more fun and it helps everyone make more money. We want to create a bright future for companies at the same time that we work on creating a bigger and brighter financial future for ourselves and for our families.

Here is a look at a fun dashboard of profitability by industry.

Check out the free member content area here for a lot more videos and tools to help you drive profitability and cash flow.

Philip Campbell is a CPA, 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 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

This book provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better, faster, smarter financial decisions.

Too many entrepreneurs and CEOs today are feeling more like passengers than drivers in their business. They’re staring at their rearview mirror as they bounce along in the passenger seat. Their company is careening along on the highway of business as they wonder and worry about where their business might end up financially.

A reliable financial forecast solves this problem by providing a clear view through the financial windshield of your business. It creates the visibility and clarity you need to drive your company toward a bigger and brighter financial future.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

A reliable financial forecast puts the answers to these questions at your fingertips. It helps you take control of your profitability and cash flow because it gives you answers to the most important financial questions you have to deal with every day.

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Cash Flow Problems Don’t “Just Happen”

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It is a myth to think that cash flow problems “just happen.”

You would be shocked and amazed at the number of businesses that fail because the owner did not see a cash flow problem in time to do something about it. One thing I want to really help you to see is that cash flow problems can almost always be seen far enough in advance to do something about it.

Rarely is a cash flow problem a sudden event. It is almost always something that accumulates over time, and it is not difficult to see it coming.

Here is a real-life example I experienced while working with a small business.

The president of the company had some concerns about his accounts receivable. He thought the process for collecting receivables from his customers was not functioning as well as it could. Money was tight, and he believed the primary reason was a slow-down in collecting receivables from his customers.

The first thing I did was to ask the two critical questions from my book Never Run Out of Cash:

  1. What is the cash balance right now?
  2. What do you expect the cash balance to be six months from now?

He didn’t know the answers. His response was that cash was “a little tight right now.” This turned out to be a dramatic understatement.

My next step was to spend some time in the accounting department, which, as the keepers of the accounting records, is where one should be able to find the answers to the questions. And find the answers I did!

Here is what I found:

  • Cash wasn’t just “a little tight right now.” The dollar amount of vendor invoices in the system to be paid (accounts payable) was three times more than the cash available to pay the invoices. More than half of the invoices were already past due.
  • Not all the invoices had been entered in the accounting system. There were fairly recent invoices that were sitting in a stack to be entered later. The accounting department personnel were in no rush to enter the invoices because they knew they would not be able to pay them anytime soon.

The reports that had been printed to show the cash balance and the accounts payable balance (bills to be paid from the cash balance) did not even show these bills. These invoices went into a stack I call the “these will be entered closer to when they can actually be paid” stack. I have seen this happen in many companies that have cash flow problems. Accounting is forced to delay payment on some invoices and not pay others at all. Vendors then start calling to demand their money.

The vendor’s favorite question is, “When will I get paid?” After several calls, they start to sense that the company is in trouble. Then they get upset and rude with the person on the phone. That’s when it gets ugly—and a bit personal. It’s hard for the clerk in accounting to take the heat from a vendor who feels like he is being cheated by the company. The vendor provided a product or service to the company and he wants his money when it was promised. The vicious cycle continues.

Accounting is now spending much more of its time fending off vendor calls. Another chunk of time is spent fending off people inside the company who are also irritated because vendors are starting to call them and threatening to cut off products or services.

  • A small amount of cash was on hand but had been put off limits for paying the bills. Accounting had been instructed not to use that cash because it was to be used for an investment that was planned in about 30 days.
  • A schedule had been prepared that attempted to project cash flows for the next 12 months. However, the approach to the schedule was confusing (for the business people and the accountants) and difficult to understand.

The Decisions Came Easy Once the Facts Were Clear

I reported back to the president what I had found. My approach when I do this for a business is to bring them the answers to the two key cash flow questions. My job is to make sure they can answer the two questions instantly from the information I provide.

In this case, I sat down with the president and gave him the facts and a list of what needed to be done. We reviewed the findings and precisely what was going on with his cash balance.

Here is a summary of the realizations he came to after seeing the cash flow information in a new way:

  1. His books were not accurate. All the invoices from vendors were not yet in the accounting system. Any numbers he looked at from the system right now were inaccurate. He realized this was a big problem that had to be fixed immediately. He had bad financial information.
  2. He had to abandon the planned investment. He now could see clearly that if he made this investment, the company would run out of cash within three to six months of writing the check.
  3. The cash set aside for the investment should be used to pay all existing vendor invoices. He realized that he could not run a company that does not pay its bills. It was an incredible waste of time for him (and all the other people in the company who were constantly fighting the cash flow fire) and it was a terrible business practice. The president was being forced to divert his focus from doing what he did best—taking care of customers and selling more product.
  4. His accounts receivable collections had slowed somewhat, but not as much as he thought they had. He realized this was only a small part of the cash flow problem.

The president was genuinely surprised at the size of his cash flow problem. He knew the cash balance was uncomfortably low, and he knew “some bills” were not being paid on time. What he didn’t know was that the past due bills dwarfed his cash balance. He also did not realize there was a stack of invoices that had not even been entered in the accounting system yet. The reports he was being provided from time to time about the cash and unpaid bill problems were not accurate. They were incomplete.

As a result, if he had continued along the path he was on, he would have written the check to make the investment that had previously been planned. He would have done it on the assumption that the company could continue managing with cash being “a little tight right now.”

The Two Critical Cash Flow Questions Saved the Company

Once the president knew the answers to the two critical cash flow questions, he knew he had to change course—and do it fast.

Presented with the answer to what he expected the cash balance to be six months from now, he knew exactly what he had to do. The president knew that the investment could not be made.

It became perfectly clear that making the investment would bankrupt the company within just a few months of making it, all because he did not have an accurate view of what the company’s cash balance was expected to be in six months.

This was an important realization for him and his business. Before he had the answers to the two questions, he felt confident in making the decision to go forward with the investment. After he had the answers to the two questions, he was confident in making the decision not to go forward with the investment.

The exact opposite decision was made once he had an accurate view of his cash balance and where it was expected to be over the next six months. This made all the difference for his company.

Have you ever tried to make an important decision like this without knowing the facts?

Don’t make this mistake in your business.

(This blog post is from Chapter 8 of my book Never Run Out of Cash: The 10 Cash Flow Rules You Can’t Afford to Ignore. The book provides an easy-to-understand, here’s exactly how you do it guide to help you better understand and manage the cash flow of your business.)

Philip Campbell is a CPA, 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 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

This book provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better, faster, smarter financial decisions.

Too many entrepreneurs and CEOs today are feeling more like passengers than drivers in their business. They’re staring at their rearview mirror as they bounce along in the passenger seat. Their company is careening along on the highway of business as they wonder and worry about where their business might end up financially.

A reliable financial forecast solves this problem by providing a clear view through the financial windshield of your business. It creates the visibility and clarity you need to drive your company toward a bigger and brighter financial future.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

A reliable financial forecast puts the answers to these questions at your fingertips. It helps you take control of your profitability and cash flow because it gives you answers to the most important financial questions you have to deal with every day.

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

The Four Hats That Every Business Owner Must Wear

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In the book The Road Less Stupid, author Keith Cunningham provides fantastic real-world advice for entrepreneurs and business owners.

I especially enjoyed Chapter 6, where he talks about the four hats you must wear in business.

You have little choice but to wear many hats in your business. The key to successfully wearing each hat is to think purposefully about each hat, each role, with an eye to making sure you perform each role well… or that you have people around you that help you perform each role well.

This is a topic that challenges almost every business owner. Especially when your business is doing $1 to $5 million in annual revenues and you have plans to grow the business.

Here is a summary view of how Keith Cunningham describes each of the four hats:

Artist Hat: With this hat you are focused on what needs to be created. An artist loves their ideas and creations and enjoys seeing their creations come to life.

Operator Hat: With this hat you are focused on what needs to be done (especially on what needs to be done today). “An operator is a great technician who adds value through their time and effort. Operators focus on getting it done.” They are better than anyone else in the company at doing the work.

Owner Hat: With this hat you are focused on what needs to be structured, measured, planned, and delegated. “A great owner runs the business end of the business by measuring results and then either fertilizes the activities that produced the good results or changes the activities that caused the bad ones. Owners know and use all the levers in the business cockpit – particularly the financial statements, dashboards, and metrics of the business to help them make great decisions. An owner is engaged and involved in the planning, execution, measurement, and corrections necessary to proactively lead and manage the business and employees.”

Board Hat: With this hat you are focused on what could go wrong. “On how you can mitigate the probability of a risk occurring or reducing the cost if it does occur. A valuable board of directors uses the same skill sets and brain cells as a great investor does. The key attributes of both are the abilities to question, probe, think sequentially, substitute rational thought for emotion, anticipate crisis, predict 2nd-order consequences, and identify risks. Unlike the other three hats, which are focused on the doing part of business, the board (or investor) hat is a way of thinking.”

He goes on to say:

Think of each role as a different hat that must be worn depending on what the business needs. When you add each hat to your wardrobe, it allows you to think about your business in different ways at different times.”

Which Hat is Your Favorite?

My natural skillset is wearing the Board hat… while at the same time helping a smart business owner understand and master the business end of the business.

I am not an operator at all. I wish I was… but I’m not.

My unique abilities are focused on the financial side of business. I orchestrate the Monthly Financial Rhythm of business to make it easier for the Business owner to drive growth, profitability, and cash flow higher and higher every year.

Here is a quote that speaks to the importance of the Owner and Board hat as you grow your company:

As a business grows (gets traction and scales), the additional skills required to evaluate and seize new opportunities, create enterprise value, and sustain momentum are all business related: for example, managing cash flow, hiring the talent, reading financial statements, creating a culture, refining the target market, designing the messaging, leveraging other people, delegating tasks, allocating resources, prioritizing, strategizing, creating dashboards, and measuring outcomes.”

Which Hat Needs More Attention?

Which hat do you spend most of your time wearing?

Which hat is NOT your favorite?

Which hat do you need someone’s help to cover that role properly?

Take a minute to read through the description of each hat/role one more time real quick. It is a beautiful way to summarize the many roles you must play, and play well, to create and grow a successful business.

Philip Campbell is a CPA, 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 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

This book provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better, faster, smarter financial decisions.

Too many entrepreneurs and CEOs today are feeling more like passengers than drivers in their business. They’re staring at their rearview mirror as they bounce along in the passenger seat. Their company is careening along on the highway of business as they wonder and worry about where their business might end up financially.

A reliable financial forecast solves this problem by providing a clear view through the financial windshield of your business. It creates the visibility and clarity you need to drive your company toward a bigger and brighter financial future.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

A reliable financial forecast puts the answers to these questions at your fingertips. It helps you take control of your profitability and cash flow because it gives you answers to the most important financial questions you have to deal with every day.

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Show Your Money Some Love

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I write this blog and my books for business owners who care about money. It’s the side of business I absolutely love and enjoy… and where I like to spend almost all my time and attention!

Caring about money in business starts with the realization that strong profitability is a key driver of financial success in your business (and in your personal life).

So, a few questions are in order about your profitability this year:

  1. What do you expect your profit (taxable income) to be for the year?
  2. Is that level of profitability above-average or below-average for your industry? Here is a fun, interactive dashboard with profitability metrics across 94 industries to compare to.
  3. What percent of revenues does your profit represent?
  4. Is your expected profit up or down from last year?
  5. How much of your profit will be converted into cash this year?

 Paying Attention to Money

Stepping up your financial game in business, and showing your money a little love, begins with paying attention to profitability. I like to call it bringing adult financial supervision to your “money factory“.

And the good news is:

  • Profit is one of the easiest numbers/concepts to get your arms around (whether you are a financial person or not).
  • Estimating what your profit will be this year is a great first step toward creating a more forward-looking view of financial performance.
  • Profitability in business is like a car in that it must be driven… it doesn’t drive itself (at least not yet). 😊

Make it Fun

You can make it fun by setting a timer for 2 minutes.

Then write down your gut level answer to each of the five questions within the 2-minute window.

Now test your answers against your most recent P&L and a thoughtful/informed estimate (a reliable financial forecast) of your profitability for the remainder of the year.

Are you feeling like you know the answers?

Or do you feel like you are flying blind when it comes to profitability?

Show Your Money a Little Love and Attention

Someone needs to be on top of your profit expectations. Is that you… someone else in your company… or an outside advisor?

The mere act of paying closer attention profitability will help you drive it higher this year.

As a result, your money is much more likely to stay close to you, rather than leave you for someone else’s bank account. 😊

Remember, we all need a little love… including your money.

Philip Campbell is a CPA, 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 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

This book provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better, faster, smarter financial decisions.

Too many entrepreneurs and CEOs today are feeling more like passengers than drivers in their business. They’re staring at their rearview mirror as they bounce along in the passenger seat. Their company is careening along on the highway of business as they wonder and worry about where their business might end up financially.

A reliable financial forecast solves this problem by providing a clear view through the financial windshield of your business. It creates the visibility and clarity you need to drive your company toward a bigger and brighter financial future.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

A reliable financial forecast puts the answers to these questions at your fingertips. It helps you take control of your profitability and cash flow because it gives you answers to the most important financial questions you have to deal with every day.

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Profitability Margins By Industry

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Is your business as profitable as you want it to be?

How does your profitability stack up against other companies in your industry? Or to other businesses that are like yours?

I created the interactive dashboard shown above to give you access to profitability margins by industry. The dashboard shows profitability margins across 94 industries and for the all companies combined. There are over 7,200 companies included in the industry averages.

You can enlarge the dashboard by clicking in the bottom right corner. And you can move to each page in the dashboard by clicking near the bottom center of the report. You can also click here to see an enlarged version of the dashboard.

I encourage you to compare the profitability of your business to others from time to time. Comparing your profitability with other businesses gives you a sense for whether your business is as profitable as it should be (or could be). It can be an eye-opening experience.

The super-short video below shows you how to use the interactive profitability dashboard.

Thank You Aswath Damodaran

The underlying profitability data that feeds my dashboard is provided courtesy of Aswath Damodaran. Aswath is a Professor of Finance at the Stern School of Business at New York University. He teaches the corporate finance and valuation courses in the MBA program. He makes tons of profit and business valuation information available at no cost on his website. I love his work, his books, and his commitment to sharing financial information freely.

A Fun Look at Profitability by Industry

The image below is a screenshot from the dashboard.

Mouse over a fish (in the dashboard view at the top of this post) to see the net income as a % of revenues (net margin) by industry. The bigger the fish, the bigger the net margin. It’s just a fun way to explore profitability margins by industry.

NOTE: The “Big Fish” visual works best on a computer with a mouse. If you are looking at this on your phone, just click near the bottom of the dashboard/report to go to the next page.

Overall and Industry Profit Margins

The screenshot below shows overall profitability margins and provides a drop-down menu, so you can pick a specific industry and look at their profit margins.

The top left section is overall profitability across all industries.

The bottom left section (in the dashboard view at the top of this post) has the drop-down box you can use to select a specific industry. There are almost 100 industries in the drop-down list.

The right-hand side of that page shows the net margin (net income as a % of revenues) by industry sorted by net margin.

A Treemap View of Profitability by Industry

The screenshot below shows a treemap view of profitability by Industry.

The size of each tile is determined by the net margin for that industry. The name of the industry is shown on the tile and the % shown in the bottom left corner of each tile is the net margin for that industry.

You can mouse over each tile (in the dashboard view at the top of this post) and see additional profitability margins for each industry.

Profit Margins in a Table View

The screenshot below shows profitability margins by industry in a table view.

If you click on one of the rows (industries) in the table (in the dashboard view at the top of this post) , the graph on the right side of the dashboard will display the selected profitability margins in a bar graph format for the selected industry. I find it insightful to be able to see numbers in both a table and visual format.

How Does Your Profitability Compare?

Here is an important question to ask yourself:

Is your business as profitable as you want it to be?

I encourage you to compare your profitability to the industry data in the dashboard.

Comparing your profitability with other businesses gives you a sense for whether your business is as profitable as it should be (or could be).

It is not an exact science, or a perfectly apples-to-apples comparison. But it can give you a general sense of whether now is the time to put an additional focus on driving your profitability and cash flow higher in your business.

This 5-Minute Profitability Assessment can help you too.

Philip Campbell is a CPA, 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 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

This book provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better, faster, smarter financial decisions.

Too many entrepreneurs and CEOs today are feeling more like passengers than drivers in their business. They’re staring at their rearview mirror as they bounce along in the passenger seat. Their company is careening along on the highway of business as they wonder and worry about where their business might end up financially.

A reliable financial forecast solves this problem by providing a clear view through the financial windshield of your business. It creates the visibility and clarity you need to drive your company toward a bigger and brighter financial future.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

A reliable financial forecast puts the answers to these questions at your fingertips. It helps you take control of your profitability and cash flow because it gives you answers to the most important financial questions you have to deal with every day.

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Business Profitability Survey Results

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I created a fun survey recently to shine a light on profitability in business (and the perception of profitability in business).

A dashboard with the profitability survey results is shown above. You can enlarge the report by clicking in the bottom right corner. And you can move to each of the 3 pages by clicking near the bottom center of the report. You can also click here to see an enlarged version of the dashboard.

Profitability is one of my favorite subjects. (Well, cash flow is probably my real favorite… but strong profitability is the key driver of a healthy cash flow… so profits get my attention too.) 😊

In the survey I asked:

As a rough guess, what percent profit on each dollar of sales do you think the average company makes after expenses and after income taxes?”

It was a super-fast, 5-Second Survey to get your view on profitability in business. You can take the survey real fast here.

The Perception of Business Profitability

I read an article recently that said the general public believes that the average company has a 36% profit margin. The article was referring to a random sample of American adults who were asked the question:

Just a rough guess, what percent profit on each dollar of sales do you think the average company makes after taxes?”

WOW! 36% profitability after income taxes isn’t even close to reality.

On the one hand, it isn’t too big a surprise that the general public believes profitability in business is much higher than it really is. In some ways it fits with the view that is popular that business is filled with “greedy capitalists” that are making money hand over fist.

On the other hand, my experience has taught me that even business owners don’t really know how profitable their business is. Or how profitable their business should be.

So, I decided to ask a very similar question of people who are part of my free membership group at FinancialRhythm.com. These are a mix of business owners and finance professionals who have read my books and follow my blog. They own and manage businesses or support and advise business owners.

In a separate survey, I asked the same short question but used a service at Survey Monkey to send the survey to a general audience in the U.S. I wanted to compare survey results between a group of mostly business people and a more general, non-business audience.

Profitability Survey Results

The results are shown in the dashboard at the top of this post.

The image below is a screenshot from the dashboard. It shows a summary of the survey results for Financial Rhythm members.

71% of the responders chose the 1% to 10% category as their estimate for average company profitability after income taxes.

Responders were almost evenly split between business owners or someone running the business and accounting and financial professionals.

In order to arrive at a single percentage of estimated profitability, I created a (sort of) weighted average response using the mid-point of each range and the number of responses to each range.

The result was on average, Financial Rhythm website members estimated the profitability (after income taxes) of the average company in the US to be 10%.

The image below shows a summary of the survey results for the general public.

Only 22% of the general public responders chose the 1% to 10% category as their estimate for average company profitability after income taxes. 37% chose the 11% to 20% category.

Only 10% of the general public responders were business owners. 74% were “other” meaning they do not own or operate a business and they were not accounting or financial professionals.

I calculated the same weighted average response using the mid-point of each range and the number of responses to each range.

The result was on average, the general public estimated the profitability (after income taxes) of the average company in the US to be 18%.

Survey Results Comparison

The image below shows a comparison of the survey results from Financial Rhythm members and the general public.

The general public believes business profitability is much higher than business owners and their advisors. 18% vs. 10%. That’s a big difference. Although not near as big a difference as the survey I mentioned that showed an estimated 36% profitability.

The actual average profitability among U.S. companies in 2017 is 8% profit after tax.

Check out this dashboard I created of actual Profitability Margins by Industry across almost 100 industries and over 7,000 companies in the U.S.

I will share a post soon where I show you some specific companies that everyone is familiar with and what their profitability margins are. I think you will find it very interesting to see what other companies are making as a percent of sales.

I hope it will help you determine whether your profitability levels are where they should be. One tool that might help you is the 5-Minute Profitability Assessment. The purpose of the 5-minute profitability assessment is to help you quickly determine if your business is as profitable as it should be.

The profitability assessment is an important part of the 10-step process for making your business financially strong. It will help you breathe financial life into your business if you believe your business is not as financially sound, or as profitable, as it should be.

Driving Profitability Higher

The profits you generate in your business, expressed as a percentage of revenues (sales), is a very important metric. A business that does not consistently produce strong profitability is a business headed for the graveyard.

As my business failure rates dashboard shows, almost half of all businesses never make it to their 5-year anniversary. Only 35% survive to their 10-year anniversary.

Above average profitability is vital because it helps you generate the cash (the money) you will need to:

  • Reinvest in the business
  • Create the capital to grow
  • Pay down debt
  • Earn a higher return on your investment
  • Create financial freedom for you and your investors
  • … and make running the business fun – and rewarding!

I hope your financial improvement plans include action items related to driving revenues higher and expenses lower (and on ways to keep expenses from rising too fast).

Profitability rocks! 😊

Philip Campbell is a CPA, 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 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

This book provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better, faster, smarter financial decisions.

Too many entrepreneurs and CEOs today are feeling more like passengers than drivers in their business. They’re staring at their rearview mirror as they bounce along in the passenger seat. Their company is careening along on the highway of business as they wonder and worry about where their business might end up financially.

A reliable financial forecast solves this problem by providing a clear view through the financial windshield of your business. It creates the visibility and clarity you need to drive your company toward a bigger and brighter financial future.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

A reliable financial forecast puts the answers to these questions at your fingertips. It helps you take control of your profitability and cash flow because it gives you answers to the most important financial questions you have to deal with every day.

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Managing a Business That Survives and Thrives Financially

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More businesses fail than survive in their first 10 years.

(Mouse over the graphs in the dashboard above to see more detail about the success and failure rates. You can change the “Year Business Started” date to see that the rates do not change much over time. You can expand the size of the dashboard by clicking in the bottom right corner.)

About 50% of businesses survive to see their 5th birthday. Only 35% survive to see their 10th birthday.

The flip side of those numbers is one-half of businesses fail in the first five years of their existence. And 65% fail in the first ten years.

I’ve seen businesses fail and it is a gut wrenching experience… even when I had no stake in the company. It creates a feeling of pain and regret that sticks with you for a long time.

Ouch

I find those success and failure rates fascinating on several fronts.

First, I learned very early in my business career that making money in business is hard. Being consistently and predictably profitable is a much bigger challenge than most people realize.

Expenses are always rising. Your competition is gunning for your customers.

You really have no choice but to constantly, and persistently, work on improving your financial results in order to survive and thrive in business.

Making Money is a Skill

Ash Maurya, author of Running Lean and Scaling Lean says: “Making money is a skill”.

I agree 100%.

Getting and keeping customers… profitably, is a skill that requires constant attention and focus by the owner and management. It requires hard work and continuous improvement in every area of the business.

The Monthly Financial Rhythm of Business

Second, most businesses with annual revenues of $10 million or less do not have a seasoned CFO defining and orchestrating the Monthly Financial Rhythm of the business. There is no one providing a service that I lovingly refer to as “adult financial supervision”.

Business is already hard.

Compound that with sloppy financial management and you risk becoming one of those business failures statistics.

It’s All About Profitability and Cash Flow

Ultimately, your profitability and cash flow determine whether you survive and thrive in business.

Make sure you have someone orchestrating the Monthly Financial Rhythm within your company so you put a laser focus on profitability and cash flow.

Pay very close attention to the metrics that matter for profitability and cash flow. (This dashboard showing my business profitability survey results is an eye-opener for determining what your profitability targets should be.)

Use fun dashboards to help you manage and monitor financial goals and results.

Make sure you have a clear view through the financial windshield of your business.

I’m rooting for you to be one of the businesses that survives and thrives for many years to come. 😊

Philip Campbell is a CPA, 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 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

This book provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better, faster, smarter financial decisions.

Too many entrepreneurs and CEOs today are feeling more like passengers than drivers in their business. They’re staring at their rearview mirror as they bounce along in the passenger seat. Their company is careening along on the highway of business as they wonder and worry about where their business might end up financially.

A reliable financial forecast solves this problem by providing a clear view through the financial windshield of your business. It creates the visibility and clarity you need to drive your company toward a bigger and brighter financial future.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

A reliable financial forecast puts the answers to these questions at your fingertips. It helps you take control of your profitability and cash flow because it gives you answers to the most important financial questions you have to deal with every day.

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Aspirational Goals vs. SMART Goals

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I’ve always been goal oriented, especially when it comes to career, business, and money.

But my favorite goals, the goals that have had the biggest impact on my career and my net worth, went contrary to the conventional wisdom of setting SMART goals.

The SMART acronym stands for goals that are:

Specific – What specifically do you want to do or achieve?

Measurable – How will you know when you’ve reached it?

Attainable – Is it in your power to accomplish it?

Relevant – Does the goal fit with your values or bigger picture objectives?

Time-bound – When exactly do you want to accomplish your goal?

Using SMART goals is a very effective approach to achieving results and getting things done. I use that approach regularly to achieve many of my business and financial goals.

Aspirational Goals

But there is something almost magical about having goals that are more aspirational in nature.

An aspirational goal defies logic in many ways in that you can’t see a specific path to achieving the goal when you set it.

You can’t explain each specific step that will get you to your destination.

You’re not sure when, or if, you will attain the goal or not.

You just know that it is something that is very important to you and you want to find a way to bring it into your life over time.

A Young CPA

As a young CPA back in my early 20s, I set a goal to make $30,000 by the time I was 30. That was back in 1984 when I was 23 years old. I was a year out of college working in a small CPA firm in Beaumont Texas. My income that year was $21,377.

I had no specific path as to how to increase my pay by 50% or so. But I knew I wanted to make more money and 30 by 30 had a nice ring to it. So, I let my subconscious know I wanted to get there.

In 1986, the college I had graduated from three years prior allowed me to interview with some international accounting firms that were coming to campus to interview new graduates.

At the time, the Big 8 CPA Firms (as they were known back then) hired people right out of school rather hire experienced CPAs or accountants. By the end of 1986, I had convinced a partner at Arthur Andersen in Houston, Texas to hire me and take a chance on an “experienced” CPA rather than a new graduate.

My pitch to them was to pay me the same money they paid new graduates (which was well below my $30,000 target) and I would show them in short order that I could add value at a much higher level. Once I proved I could do it, then I said I would sit down with them to see about increasing my pay to better match the value I was providing.

I knew that my pitch would increase my chance of getting the job. And I felt that getting the job and being in the middle of the action in Houston, Texas would help me get the experience to develop my skills and ability to add value in business. And that was going to be important for me to ultimately hit my financial goal.

My income in 1988, at 27 years old, was $32,430.

I had beat the goal and the deadline. It felt good to set a goal then look back on all the interesting turns and twists that ultimately led to hitting the goal.

And it also taught me to think bigger, and more aspirational, about my financial goals.

A Net Worth of $1 Million… or More

My next aspirational goal around 1990 was to have a personal net worth of $1,000,000.

At the time, I had what I jokingly refer to as a “not worth”. My personal balance sheet had more liabilities than assets. I had a negative net worth. LESS than ZERO!

And there was no clear path to how to go from a “not worth” to a $1,000,000 net worth. It was more like an affirmation than a SMART goal.

But it was very important to me and something I thought about often and something I taught my subconscious mind to work on for me. I wrote that goal down hundreds of times to make it a part of me even when I wasn’t thinking about it consciously.

I later revised the goal to add “or more” to it because I realized that I did not want to put a lid of what I was going after.

Now as time goes by, I just change the number. Because one thing I learned about goals a long time ago was that once you hit your goal… its time to set another goal. 🙂

Goals are a process and a journey, not a destination.

Progress is the Real Objective

The real benefit of having goals, both aspirational goals and SMART goals, is progress.

It’s about making progress toward a better you and toward a bigger and brighter financial future for you and for your family.

When you envision what would make you happy, you begin to see more clearly what you want to do and have. You begin thinking directionally about the progress and improvement you would like to experience in your life and work.

Driving Financial Improvement in Your Business

That’s one reason I enjoy homing in on the metrics that matter in business. And using those metrics to frequently define and monitor the 1 to 3 financial goals to focus on in any given month or quarter.

My experience over the last 30 years has taught me that having one to three financial goals or targets that are front and center is very, very important to driving financial results in a business.

Defining the key metrics, then “hooking them up” to your financial and improvement goals, is critical to making it easy to monitor and manage your progress (or lack of progress) toward achieving those important goals.

That’s what the Monthly Financial Rhythm is all about.

There is a natural rhythm to business and money. The Monthly Financial Rhythm is about orchestrating financial goals and targets and turning those into improved profitability and cash flow.

It is one of the most powerful processes I have discovered for driving financial health, wealth, and freedom in business.

And it all starts with identifying the 1 to 3 specific financial targets that you want to improve.

And then setting goals to help you make it happen.

Achieving goals is part of what makes life fun. 🙂

 

Philip Campbell is a CPA, 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 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

This book provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better, faster, smarter financial decisions.

Too many entrepreneurs and CEOs today are feeling more like passengers than drivers in their business. They’re staring at their rearview mirror as they bounce along in the passenger seat. Their company is careening along on the highway of business as they wonder and worry about where their business might end up financially.

A reliable financial forecast solves this problem by providing a clear view through the financial windshield of your business. It creates the visibility and clarity you need to drive your company toward a bigger and brighter financial future.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

A reliable financial forecast puts the answers to these questions at your fingertips. It helps you take control of your profitability and cash flow because it gives you answers to the most important financial questions you have to deal with every day.

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Your Financial Superpower

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Knowing what’s going on financially in your business is like having a financial superpower.

It helps you make better business decisions. It helps you drive profitability and cash flow to the levels that you expect.

It helps you avoid the pain and suffering that poor financial performance will bring into your life.

Your CFO

Job #1 of a seasoned CFO is to provide you the answers to two simple questions about the financial side of your business shortly after the end of the month:

  1. What happened (last month)?
  2. What’s about to happen (in the coming months)?

A well-designed monthly reporting package (with easy-to-understand historical financial statements and insight about results vs. targets) will help you answer the first question.

A reliable financial forecast will help you answer the second question. It will tell you instantly if your company is on track to achieve your financial goals or if you need to intervene in a specific area of the business.

Taking Your Understanding to the Next Level

When I am operating in a CFO or consultant role, it’s my job to deliver financial information that answers those two questions in a simple, easy-to-understand fashion. Then I take it to the next level by asking myself these related questions:

  1. What really happened (over the last few months)?
  2. What’s really happening now?
  3. What’s likely to happen (over the next few months)?

These questions help introduce reality into the equation. They force you to dig a little deeper to understand what is really happening below the surface of the financial statements.

They help me get to the real insights about the business that I share with the owner or CEO.

It’s an honest, truth-seeking exercise.

It is driven by the desire to close the gap between what management thinks is going on vs. a reality-based view of what is really happening.

That is what you want from a seasoned CFO.

Insight, reality, and a burning desire to help you understand what is really going on in your business from a financial perspective is how a strategically focused CFO adds value.

Take a minute to consider whether you know what’s really going on financially in your business.

The answer will pay big dividends.

 

Philip Campbell is a CPA, 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 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

This book provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better, faster, smarter financial decisions.

Too many entrepreneurs and CEOs today are feeling more like passengers than drivers in their business. They’re staring at their rearview mirror as they bounce along in the passenger seat. Their company is careening along on the highway of business as they wonder and worry about where their business might end up financially.

A reliable financial forecast solves this problem by providing a clear view through the financial windshield of your business. It creates the visibility and clarity you need to drive your company toward a bigger and brighter financial future.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

A reliable financial forecast puts the answers to these questions at your fingertips. It helps you take control of your profitability and cash flow because it gives you answers to the most important financial questions you have to deal with every day.

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

What Is Your Business Decision “Batting Average”?

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Most of us believe we make good business decisions.

Just for fun, consider this little thought experiment:

  • Imagine for a minute that the quality of each of your important business decisions was measured and tracked every month.
  • And that you were assigned a “batting average” that measured the quality of each of those important decisions.

Does that sound scary… or exciting?

Imagine a system where each person on your management team had a business decision “batting average” as well. Would that help you assess the value of each person on your team? Would it scare them to have a batting average based on the results of their important business decisions?

Here are a few quotes on this subject from Warren Buffett during the 1999 Berkshire Hathaway Annual Meeting that I found thought provoking:

We believe in postmortems at Berkshire. I mean, we really do believe — one of the things I used to do when I ran the partnership is I contrasted all sale decisions versus all purchase decisions. It wasn’t enough that the purchase decisions worked out well, they had to work out better than the sale decisions.

And managers tend to be reluctant to look at the results of the capital projects or the acquisitions that they proposed with great detail a year or two earlier to a board. And they don’t want to actually stick the figures up there as to how the reality worked out against the projections.

And that’s human nature.

But, I think you’re a better doctor if you drop by the pathology department, occasionally.

And I think you’re a better manager or investor if you look at every one of the decisions you’ve made, of importance, and see which ones worked out and which ones didn’t and, you know, what is your batting average.

And if your batting average gets too bad, you better hand the decision making over to someone else.”

Believability-Weighted Decision Making

In the fantastic book Principles, Ray Dalio talks about a thought provoking concept he refers to as “believability-weighted decision making”.

Here are a few quotes from his book:

I have found triangulating with highly believable people who are willing to have thoughtful disagreements has never failed to enhance my learning and sharpen the quality of my decision making.

To do it well, be sure to avoid the common perils of: 1) valuing your own believability more than is logical and 2) not distinguishing between who is more or less credible.

This sort of principled and believability-weighted decision making is fascinating and leads to much different and much better decision making than is typical. While believability-weighted decision making can sound complicated, chances are you do it all the time – pretty much whenever you ask yourself, “Who should I listen to?” But it’s almost certainly true that you’d do it a lot better if you gave more thought to it.

The most believable opinions are those of people who 1) have repeatedly and successfully accomplished the thing in question, and 2) have demonstrated that they can logically explain the cause-effect relationships behind their conclusions.

When believability weighting is done correctly and consistently, it is the fairest and the most effective decision-making system.

Every day is not a new day.

Over time, a body of evidence builds up, showing which people can be relied on and which cannot. Track records matter, and at Bridgewater tools such as Baseball Cards and the Dot Collector make everyone’s track records available for scrutiny.”

Track Your Batting Average

Take an important decision like a capital expenditure or other large purchase or investment and document key management’s expectation of results.

Then create a simple process where you sit down to evaluate results vs. expectation after six months, one year, eighteen months, etc.

Rinse and repeat for future big decisions and see what you find.

I bet you will find that some of your management team are better than others when it comes to the quality of their important business decisions… and outcomes.

 

Philip Campbell is a CPA, 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 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

This book provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better, faster, smarter financial decisions.

Too many entrepreneurs and CEOs today are feeling more like passengers than drivers in their business. They’re staring at their rearview mirror as they bounce along in the passenger seat. Their company is careening along on the highway of business as they wonder and worry about where their business might end up financially.

A reliable financial forecast solves this problem by providing a clear view through the financial windshield of your business. It creates the visibility and clarity you need to drive your company toward a bigger and brighter financial future.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

A reliable financial forecast puts the answers to these questions at your fingertips. It helps you take control of your profitability and cash flow because it gives you answers to the most important financial questions you have to deal with every day.

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

Buy the Kindle version at Amazon.

Buy the book at Barnes & Noble.

Buy the book at Bookmasters.

Buy the book at Google Play.

If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Using Cool Dashboards to Drive Profitability and Cash Flow

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The dashboard you see above is a simple, interactive dashboard a company uses to help them monitor the metrics that matter in their business. The dashboard is interactive, so you can play with it. You can:

  • Mouse over the visuals to get additional information about each metric
  • Move between the five pages by clicking at the bottom center of the dashboard
  • Expand the size of the dashboard by clicking in the bottom right corner
  • Use the “slicer” in the top right corner to dynamically change the time periods being presented.

Check out this short video where I show you how to use the dashboard.

I’m a huge fan of using cool financial dashboards to highlight the metrics that really matter in business.

New technology has made dashboards super powerful and amazingly easy to use (and low cost). I absolutely love the focus they bring to the work of improving profitability and cash flow in a business. It can help you:

  • Use the Monthly Financial Rhythm of business to highlight the metrics that really matter
  • Create and present compelling visual, interactive dashboards
  • Make your dashboards shareable in the cloud
  • Create drilldowns that impress and enlighten
  • Make your dashboards available on mobile devices so insights are available anytime, anywhere, from any device

I will be presenting a complimentary webinar on March 15, 2018 to show you some specific examples of cool dashboards. You’ll be surprised what you can create with the new breed of Business Intelligence (BI) technology and tools available today.

You can sign up for the free webinar here.

If you are reading this after March 15, 2018, you can see the recorded version of the webinar with your free membership here.

Philip Campbell is a CPA, 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 30 year career includes the acquisition or sale of 33 companies (and counting) and an IPO on the New York Stock Exchange.

This book provides a straightforward, easy-to-understand guide to one of the most powerful financial tools in business: a reliable financial forecast. It will transform the financial future of your company and help you make better, faster, smarter financial decisions.

Too many entrepreneurs and CEOs today are feeling more like passengers than drivers in their business. They’re staring at their rearview mirror as they bounce along in the passenger seat. Their company is careening along on the highway of business as they wonder and worry about where their business might end up financially.

A reliable financial forecast solves this problem by providing a clear view through the financial windshield of your business. It creates the visibility and clarity you need to drive your company toward a bigger and brighter financial future.

What if you had answers to questions like:

What’s about to happen to my profitability and cash flow?

How much cash can we distribute to the owners of the business?

How long will it take to pay off our debt?

What will our taxable income be this year?

A reliable financial forecast puts the answers to these questions at your fingertips. It helps you take control of your profitability and cash flow because it gives you answers to the most important financial questions you have to deal with every day.

Put yourself in the driver’s seat of your business by tapping into the unique and exciting benefits that financial forecasting can unlock for you.

Buy the hardcover at Amazon.

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If you already own the book, the free tools and downloads are waiting for you. Click here to access the financial spreadsheets, examples, rapid learning guides, and more.

Philip Campbell

Philip Campbell is the founder of Financial Rhythm and is the author of the book A Quick Start Guide to Financial Forecasting: Discover the Secret to Driving Growth, Profitability, and Cash Flow Higher.

He is also the author of the book Never Run Out of Cash: The 10 Cash Flow Rules You Can't Afford to Ignore.

Philip's 30-year career includes the acquisition or sale of 33 companies and an IPO on the New York Stock Exchange. Early on in his business career Philip focused and “preached” so much about the importance of profitability and cash flow that people now call him CASH.

Here's why....

(Financial Rhythm is not a CPA firm)

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