Most business with sales of $10 million or more keep their books on an accrual basis, which can have a downside.
That’s because accrual accounting assumes that receivables will be collected and turned into cash. This was a very bad assumption during Covid.
The pandemic may be over, but other things can go wrong, too.
That’s why you need more than a P&L to understand what is going on with your business.
What you really need is a monthly statement of cash flows, plus a 90-day cash forecast.
A statement of cash flows shows you the cash coming in from operations and investments and the cash flowing out to pay for your operations and any financing obligations.
Armed with this information, you can spot trends and potential problems. Then, you can develop a plan for dealing with them.
If your finance person isn’t providing you with clear cash-flow statements and forecasts, ask for them.
If he or she can’t provide them, we can help you find a new finance person, on a confidential basis if necessary.
There’s a reason people say, “Cash is king.” When you’re out of cash, you’re out of business.