The answer most likely has to do with cash flow.
Do I have enough cash to make payroll this month?
How do I get more customers if I don’t have enough cash to invest in my marketing and advertising?
Will I hit my milestones in time for investors to provide the next round of financing?
As the CFO, when I present a company’s financials to the board of directors, the #1 metric they want visibility on is the liquidity of the organization over the next 3, 6, 12, and if possible 24 months.
And so I start every finance presentation with a summary of the cash flow key performance indicators summarized quarterly:
“Cash at the beginning of the quarter = x
Plus cash coming in = y
Minus cash going out = z
(Equals net cash burn = (z-y) = w)
Leading to cash at the end of the quarter = (x-w) = v
# Months liquidity coverage or runway (cash (v) / operating expenses) –> ideally 6 months”
It’s key to my performance for both the board and CEO to fully understand my “liquidity spreadsheet” template that is produced monthly for the consolidated organization. This is a summarized representation of the cash flows in and out of the company.
The detail is worked out the local branch level.
At the macro level it mirrors the KPIs above, but at the micro level the spreadsheet breaks down into excruciating detail with tabs for:
… to finally produce the magic number:
You must have control of your liquidity inside the company. Otherwise, you’ll always be worrying if you’ll have any cash left at the end of the week.
As mentioned in previous blog posts, you don’t always needs to be the one keeping track of money – if you hire someone specifically for the task, they will give it their focused attention.
Other Cash Flow resources:
Whatever stage you’re at in business, you need to be all over the numbers. In posts like this, we aim to offer bite-size food for thought – but in a few hundred words, we can only do so much.
If you’re ready to build your financial muscle, how about a FREE copy of James Vanreusel’s (highly-acclaimed) book for CEOs?
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