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Posted to ManagementBlog.org on Mar 23, 2020 09:21 am by Tom Foster

As a business owner, three things to monitor.

  • Cash
  • Revenue vs Expense
  • Balance Sheet

Cash
Cash is king. And, only cash is cash. Accounts receivable isn’t cash, inventory is not cash, only cash is cash. You are going to need it. Preserve cash, tap your lines of credit, apply for government backed loans and grants.

Revenue vs Expense
Your monthly cash flow statement might need to be a weekly cash flow statement. Most accounting systems have embedded cash flow statements, but they don’t look forward very well. Try this simple one.

  • Cash Balance
  • Anticipated cash during the period (month, week) from revenue sources and accounts receivable.
  • Anticipated expenses during the period (month, week) including payroll, rent and any other necessary expense.
  • What’s left? If it’s positive, that’s good. If it’s negative, that is your burn rate.

Your burn rate will eat your cash, so how much do you have in cash reserves to cover? Without modification in payroll, paying your rent, paying your vendors, how long can you last?

Balance Sheet
Most businesses can get their expenses underneath their revenue. It’s painful, but has to be done. It’s not the profit/loss that kills most companies, it’s the balance sheet. It is mortgages, institutional debt (term loans) and covenants that go with. Make sure you know your banker, high quality communication early will help. Your bank will usually put you out of business before your landlord or your vendors.

Make sure you have your survival plan in place.