LESSON 35: How to become master of your cash, why you m Articles

LESSON 35: How to become master of your cash, why you must amass a storehouse of cash, and my secret deadly weapon for winning the cash war

 The fundamental point to recognise is that this whole text is about cash control. Cash is one aspect of your business, and is actually the result of all your business activities. Therefore you cannot control cash in isolation. You first have to control your whole business, and build your cash control into that overall picture. […]

35.1 Intentionally set out to accumulate a healthy cash surplus

 One of your main purposes for drawing up your plan is to control and plan your future cash. You are not merely looking ahead to see what is likely to happen; you are setting out and intentionally building towards a strong cash position. You will not embark on a plan that shows a cash deficit, […]

35.2 Cash buys you time

 Let’s remind ourselves yet again of a stark commercial reality. Around ninety percent of businesses, or even higher, don’t survive for ten years. Despite the absence of completely accurate statistics, it’s obvious that many, many more die than survive. If you know anything about the death of a business (and I hope you never have […]

35.3 Generate enough cash to satisfy you and your business

 Having actively decided that you want to accumulate a cash surplus in your business, you have to resist the temptation to raid that surplus for your private desires. During your planning you should have identified what you want personally from your business, including how much cash you want. You should have built that into your […]

35.4 Forecasts are a vital tool in cash mastery

 Forecasts are a critical tool in controlling your cash and in building cash strength. The forecasts we are talking about here are not the stand-alone cash-only forecasts we discussed earlier. The forecasts we are now discussing take the form of updated versions of your annual budget, and are produced in your same budgeting/planning model. Firstly […]

35.5 Two forecasts are better than one

 In reality it is advisable to produce not just one but two forecasts each month. The only difference between these two forecasts will be the sales assumptions on which each is prepared. It may sound like a lot of work to prepare two forecasts every month, but actually it does not take long once you […]

35.6 Introducing your CASH SHIELD – my secret weapon for accumulating an abundance of cash in any business

 The aim is to see how long your cash would last if your sales dried up. We are quantifying how much leeway you have until your profit and cash crashes. We are testing your business to destruction, but in the safety of your PC. What you are really trying to determine is for how long […]

35.7 This approach to building financial strength works

 By re-computing your Cash Shield every month, using the same definition of worst-case sales, you can see whether you are strengthening your business or weakening it. You should aim to increase your Cash Shield month by month until it reaches a level you are comfortable with. The level at which you feel comfortable should certainly […]

35.8 The typical business lives life on the edge

 It is often the case that businesses live on the edge, and so are vulnerable to changes. If they have just a couple of abnormally bad months they may be left in bad shape, or can even fail. Some can carry on living and working in this danger zone for years, especially if sales are […]

35.9 Why you should build a margin of error into your plans and forecasts

 It is clearly difficult to predict with accuracy what your cash will really be at any time. And the longer you look into the future the harder this becomes. Equally it is near impossible, for most businesses, to control themselves so tightly that they are able to force themselves to conform exactly to their plans […]

35.10 Conclusions on cash mastery

 You now understand how to manage cash in your business. As always, take a big picture view. Just as with profit, precise measurements and minor fluctuations are completely irrelevant. They’ll happen and you won’t be able to stop them nor predict them; but you don’t need to. Focusing on small issues and trying to micro-manage […]