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Awakening to Your Cash Position

Awakening to Your Cash Position

Awakening to Your Cash Position

Employee Emeritus Employee Emeritus ‎11-13-2011 08:06 PM

TanyaB.pngGuest post from Tanya Brockett this month’s featured author from the Verizon Authors Series. Tanya is an adjunct professor of Entrepreneurship and Book Publishing at the University of Virginia; 15-year advocate of and consultant to entrepreneurs; and author of The Loan Solution.




Oftentimes we choose to avoid the evaluation of our spending because we are afraid of what we will find. If we examine our spending habits, we may see that we spend way too much on, say, office supplies than we need to. We overspend on every new gadget that comes along without looking at the return on that investment. We spend mindlessly on marketing...just because. We couldn't quantify the results of the advertising campaign if we wanted to. And, in reality, we didn't even have a campaign, it was just a series of spending actions that led to...well...we don't know because we didn't measure our results.


Year-end is a time to recognize that we cannot accurately set financial goals for our new year if we don't look at the spending of the previous year. At least, if we do, we won't know if it is better or worse, realistic or not. Small business owners, heck all individuals, need to take a look at their performance over the past year to set a new strategy for the year to come.


Now is the time to get a jump on entering the months' worth of transactions that you have avoided entering into your accounting system. Now is the time to record all the deposits, and document all the spending. Don't wait until the year ends to do this. Your accountant is going to have enough rush work to do without adding yours to it. Give them a break, and give yourself a heads up, by ensuring that all of your transactions are entered into your system and accounted for.


After you have done so, go ahead and pull up your preliminary income statement and balance sheets: your financial statements. These will help you to analyze your business activity from a financial perspective. Yes, you should have been looking at these monthly; but that is water under the bridge now. Pull up your statements now and evaluate what you see, so you aren't surprised by what your accountant finds after the year has ended.


If you find that you are in a better cash position than anticipated, you might ask your accountant about whether to buy the equipment that you need to run your business, in order to take advantage of new tax credits this year. It may mean you have to take possession of and put the equipment into service before December 31 to take the tax credit for the whole year. Find out now so you can take advantage of it.


If you find that you are in a cash-strapped position, what led to this? Can you identify areas of overspending or loss of inventory or poor pricing strategies that negatively impacted your cash? Have you made investments into marketing in a slow market? If not, why not? A down market is the time to be seen amongst the usual advertising clutter. It is also when customers may see you, consistently, rising above your competition.


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After you have evaluated your financial position and discussed it with your accountant or business consultant, use your new knowledge to chart your course for the upcoming year. What will you do differently to improve your cash position? What will you keep the same because it is working well for you? What new income streams can you produce to boost sales? What fresh perspective can you take on your existing business and service areas that will breathe new life into your financials and the excitement you enjoy in "doing" your business? There is nothing like bouncing ideas off of others to help you stimulate your thinking. So plan to get together with others to share ideas, share best practices, and explore industry trends. It is likely to make a positive difference in your business, regardless of your current position.


Armed with all of the new insights and ideas, quantify your revised approach by developing a cash budget. This is not the same as creating financial statement projections (pro formas). Creating a cash budget helps you to literally see each dollar (or penny) going in and out of your business each month.  On page 40 of my book The Loan Solution, you will find a twelve-month cash budget spreadsheet that helps you to clearly identify each cash expenditure that your business will make (find the spreadsheets at


In many ways, this is better than an income statement projection, because you can follow the movement of money, not just expenses (which may or may not require actual cash to claim).


My book recommends a very practical approach to budgeting that you should consider: put the actual dollar item where it will actually fall in your year, rather than just taking an annual total and dividing it by twelve for a monthly amount. For example, if you know you only pay your business insurance bill quarterly, put the quarterly amount into the four months that you will actually pay the bill. It sounds simple, but many business owners do not know what their monthly cash outlay is likely to be, so they cannot respond quickly when sales dip or when a great supplier discount can be realized.

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If numbers are just not your thing, offset your weakness with someone else's strength. Seek out someone who can assist you with the collection, reporting, and analysis of your financial position. You, your business, your customers, and your employees will all benefit greatly by your willingness to evaluate and plan.  No matter what you find in your analysis, having your eyes wide open will allow you to have a better year in 2012.


To win your free copy of The Loan Solution be one of the first 15 people to send an email to vzsmallbiz@verizon.nettelling us you’d like a copy of Tanya’s book.  Of course, in the email, do share with us how you handle your company’s cash flow.


For opportunities to get more insights from Tanya click here.


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