Your Business Journey Pt. 1 | The Short Term: Cash Flow

Written by: Fargo Inc

Photo by J. Alan Paul

Meet Josh Hoper

TorchLight AE Founder Josh Hoper has been a part of giant corporations and a solopreneur.

“I’ve known the pain of being miscast in roles and the joy of finding the right fit,” he says. “I’ve been very bored and very challenged. I’ve felt extremely isolated and very well connected. I’ve learned a lot about other people and a lot about myself along the way.”

Hoper’s current primary work is providing business consulting for small commercial companies — up to about $20 million in annual revenue — local nonprofits and, more recently, the public sector.

Coming Up
Pt. 2 | The Medium Term
Pt. 3 | The Long Term

In my professional life, I try to help clients understand their company’s situation, but there are hurdles I must overcome. Not everyone has a finance or accounting background, and many entrepreneurs don’t want to learn all the esoteric financial jargon that’s common among financial experts.

I don’t pretend to be a financial expert, but I’ve been around it long enough to understand most of the fundamentals and many of the details. I’ve gotten many chances to translate what I’ve seen as important concepts and turn them into ideas that are relatable.

In part one of a three-part series, I will illustrate for you an approach I’ve used to explain the financial reality of any organization. Perhaps it will make your own company’s financial reality clearer, and maybe it will give you tools to help explain your company’s financial reality to people in your organization whose eyes roll every time you mention any financial terminology. In this article, I will share the first of three ideas that illustrate the short-, medium- and long-term aspects of your organization.

Your Business As A Trip: An Analogy

Close your eyes for a moment, and picture the last trip you went on. Chances are you did a bit of planning, took steps to move from your original location to your destination and probably had to resume your normal routine once you returned from the trip. The financial reality of your company has key things in common with the journey you just recalled.

The most common lens from which I see people looking at their company’s financial health is the one that represents an important (and the most urgent) part of their financial picture: cash. After all, cash is king, right?

“If I have enough in my bank accounts, my business must be doing just fine.”

When you think of the journey of your business, try thinking of cash flow like you think of your fuel gauge. If the needle is above empty, you’re in good shape. In fact, you need to make sure your gas tank never goes empty during your trip. Sure, you might have a reserve gas tank or roadside assistance available with a quick phone call, but what if you’re 100 miles away from the next station and your phone battery dies? If you run out of gas and don’t have any more ways of replenishing your supply, your trip is over.

Companies don’t go out of business because they didn’t have a good enough idea or because they didn’t sell enough products or services. It’s not uncommon for profitable companies to go out of business. Companies go out of business because they’ve run out of cash.

About 80 percent of startups survive the first year. Often, they’re funded with someone’s savings, and if the business isn’t making much money, that saving starts to get depleted. In extreme scenarios, people can burn through retirement savings or inheritances. They typically survive two or three years, but once the cash runs out, the business is done.

Treat Your Budget As Sacred

To give a business the highest probability of having strong cash flow, it’s critical that leaders and managers keep a close eye on their financial information. The most successful companies I’ve seen create budgets and review them regularly. Companies with the strongest cash flow have developed the ability to predict where money is coming and going. They can create budgets that are realistic and attainable, and they place heavy scrutiny on decisions that deviate significantly from their budget.

Depending on how heavily traveled your trip route is, you’ll often need to understand how far apart fueling stations are and how far you can travel with your vehicle’s fuel capacity. Additionally, you should also consider what types of fuel are available at each station.

  • Do they have the types of fuel that are usable for your vehicle?
  • Which types of fuel give you the best fuel efficiency?
  • Which types of fuel make your vehicle perform better?

In your business, you need to know what financial resources are necessary to fund the everyday operations of the business. Researching these things before you start can help you avoid a lot of headaches.

  • Are there any strings attached to the funding sources for your business?
  • How important is it that your funding sources have values that are aligned with yours?

You should have clarity about the answers to these questions even if you’ve been in business for a while. If you’re like most businesses, the answers can change over time.

The most successful companies I’ve seen create budgets and review them regularly.

Each month, I’ll provide you with an action item that you can take back and implement with your own company and team. This month?

Cash flow challenge: If you haven’t already, review with your team the most critical transactions your business does that most affect your cash flow this time of year.

TorchLight AE

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Brady Drake is the editor of Fargo INC!