Multi-Unit Franchisee Magazine Issue IV, 2013 | Page 78

Finance By Steve LeFever

Cash Flow Checklist:
How Do You Rate?
Check your business for these 20 danger signals!

T

o most financial advisors, convincing
their clients of the absolute necessity
of maintaining a sound financial
system and cash controls—and
the need to consistently review, evaluate,
and plan—is about as easy as selling first
aid. Everyone knows it’s there, but we can
always “do it later.” Besides, “It won’t happen to me.” Or, “So what? I don’t have any
control over all that stuff.”
You’re right, you don’t. However, what
does this mean for individual businesses?
The loud and clear message here is “manage better.” When there’s less room for
error, you must do a better job.
As business owners, we have faced the
ups and downs of economic cycles—and
probably always will. In addition, technology and social changes have drastically
affected many individual industries, not
to mention both foreign and domestic
competition. The devastating impact of
the Great Recession is just the most recent example.
In a positive, expanding economy, the
primary focus is on sales as an easy indicator of success or failure. Business owners
and managers devote relatively little time
to efficiency and control, and virtually no
effort is made to manage the balance sheet.
Then, when the economy changes (as it
always does!), or competition enters the
scene—or both—profits are squeezed and
volume declines. Prices are lowered in an
effort to bolster sagging volume. Lower
prices translates to lower margins—lose
a little on each sale and make it up on
volume. High leverage makes debt harder
to service and increases interest expense.
Suddenly, the areas of control and management become key focal points. In a recessionary or changing economy, survival
becomes the key issue and cash flow is king.
Emphasis switches from profits to cash
flow and the highly leveraged, inefficient
firms become statistics.
If you’ve ever attended a Profit Mastery

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Multi-Unit Franchisee Is s ue IV, 2013

session live or watched our online videos,
you know that our primary message focuses on the importance of establishing,
maintaining, and using financial controls.
In times of rapid growth, I don’t get many
calls for articles on “cash control.” As I said,
the emphasis is on sales.