I was chatting with a business owner last week, who has run a very successful professional services business for about 15 years, and he was mentioning to me that seemingly out of the blue, he’s having cash flow issues. Of course, my ears perked up.
ME: What do you mean ‘out of the blue’
HIM: In 15 years of running my business I have never had cash flow problems, and now I do.
ME: Was it a one-time thing? An accounting mistake, a late deposit, a large unforeseen expense?
HIM: I thought it was, and then it happened again and kept happening and then I almost missed payroll for the first time in 15 years and it freaked me out.
And then he said the thing I knew wasn’t true… “It just snuck up on me”
I bet him that it didn’t and that if he had been looking at his financials the way that I do, they would have been told him that. Sure enough, we looked at his accounts receivable going back a few months, and they had been slowly creeping from 30 to 60 to 90 and I said, here is where your financials were screaming ”Hey, hey, look at me!!! You’re going to have a cash flow problem really soon.”
Here’s the deal, if you learn how to read your financials (shameless plug: work with a fractional CFO like myself to learn how) they will tell you stories all along the way, things like ‘you’re running out of cash’, ‘your operations are improving’, uh oh, this product isn’t as successful as I thought”
There will be these ‘AH HA!’ moments, I promise. I preach to potential clients and existing ones, that even if you outsource your financials, does not mean you can stop paying attention to them. Learn how to listen to the story your financials are telling you. You don’t have to be a numbers whiz, you just have to learn to pick up on the little signals and signs. Some of them will be great signs, and some of them will be warning signals, either way, you will know more about the future of your business.