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Thought Leadership

Even if you don’t have a knack for numbers, every entrepreneur needs to understand theirs. On January 30th, EEE’s Kyle McGrath and Tricia Katzenmoyer showed a group of entrepreneurs how it’s done with their “Predicting Success Through Cash Flow” presentation at Haven Collective.

If you missed out, don’t worry, here are some highlights:

Cash is King

It’s no secret that having cash on hand alleviates a lot of stress. When you have it, business decisions are clear. When you don’t—such as when the cash required to produce your goods and services is spent before the revenue for those goods and services is received—it can be scary. Successful entrepreneurs are fanatical about cash management, and have a solid understanding of where their money is going.

Here are some examples of “Cash Gobblers”:

  • Not having a controller analyze your financials (or having a bad one)
  • Buying too much or too little inventory
  • Taking forever to collect payment owed to you (AKA accounts receivables)
  • Blowing your travel/entertainment budget 
  • Technology spends (are you still using the apps and programs you subscribed to a year ago?)
  • Cybersecurity (a necessary evil; we can’t be without it)
  • Depreciation (can make it appear like you have more cash on hand than you actually do)
  • Justifying entrepreneur (think chocolate at the end of a stressful day: “I deserve this reward….”)

So what are the most common financial mistakes most entrepreneurs make? Kyle and Tricia described the following:

  • Not having a 13-week projection. What’s so significant about 13 weeks? That’s the number of weeks in a quarter. Breaking down your cash inflows and outflows helps you better understand your financial position.
  • Not managing your inventory properly. As mentioned above, having too much or not enough.
  • Not managing your line of credit. It’s a good idea to get one when you don’t need it so it’s in place when you do.
  • Not communicating with your bank. Having a good relationship with your bank manager can give you the benefit of the doubt when you need a favor.
  • Managing cash flow with hope. Have hope, but don’t make decisions based on it.
  • Thinking a bigger line of credit or a new client will solve your problems.  They won’t. Don’t rely on hope.
  • Not managing your accounts payables and accounts receivables. Know what’s coming in and going out.

What can an entrepreneur do to predict success through cash flow? Kyle and Tricia said to track the following indicators and be obsessed with them: 

  • Lagging indicators.These are reports that show you what has already happened, such as an income statement, balance sheet and cash flow statement.  
  • Leading indicators. This is your 13-week forecast and forward-looking key performance indicators (KPIs). KPIs are different for every business but could include financial and non-financial things such as net promoter score, employee satisfaction ratings, net profit margin, profit per customer or per employee, or monthly recurring revenue. See the KPI library or the graphic below for more examples.
  • Track lagging and leading indicators on a consistent schedule.
    • Weekly: AR, AP, payroll, 13-week cash flow, and KPIs
    • Monthly: Financial statements, year over year, rolling 12 months
    • Quarterly: Financial statements, strategic decisions—look for trends
    • Annually: Financial statements, year over year, changes in expectations/behaviors, reconcile to your business plan, plan for the future

If you’ve been in business for a while you may have some of these indicators in place already. Implementing all of them at once can be overwhelming, but tackling them in smaller chunks is more manageable. 

Are you ready to start predicting success in your business? For more information about this presentation, or if you would like to learn about the Emerging Entrepreneur Experience, please contact us!