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I have not been feeling well the past few days – between my allergies, weather, and other issues have not been myself and have not been resting well. While recovering this topic has whirled around in my head.
As many of you know ethics and morals are my thing – just because something is legal does not make it moral or ethical and I believe because so many have lost sight of this. Without trust no business can be conducted. In fact trust is the basis on which all business is built at all levels and when it no longer is present business cannot and will not exist.
What is the quickest way to build your sustainable business – establish trust and credibility
What is the most effective way to decimate your business – erode trust
This post begins a series on exploring the various ways to destroy trust and credibility thus any hopes of your running or growing a profitable and successful business
Childlike immature unprofessional behavior
Betrayal and failing to keep your promises
Lack of respect
Dishonesty (lying) this includes misdirection
Avoidance
Stealing/theft
Being defensive, critical and/or argumentative
Being self-absorbed and/or self-centered
Not accepting responsibility for your behaviors
Control/power struggles
Over estimating yourself (having to high an opinion of your value)
Poor listening skills
Not listening to the needs of your clients, suppliers, or employers
These topics may be organized slightly differently as each are explored – however it is important to understand regardless of your ability – if your business or services are views as a detriment to anyone you are doing business with – client, supplier, employee, employer due to their negative impact then those relationships will be terminated. Do not worry I will continue to scatter tech updates, reviews and related posts.
Before I begin I have a question – do you think this series will be helpful to you as a business owner?
What a topic – has been something have spoken of time and again and yet find it so ironic that years later suddenly a little of what I have said all along makes sense. Greed is not good never has been never will be. Green helps no one not even the person practicing, in fact the word for the person who practices greed is glutton.
My personal definition of greed – taking something you do not need and have not earned typically from someone else who did at their detriment because in your childlike behavior you want it and somehow feel entitled to it not because you need it but because you saw
I will never say people like Michael Dell, Steve Jobs, Bill Gates, Donald Trump (albeit through the help of the foundation his father created) should not have every dime they do, my problem lies in employees of people who have not earned through work and merit compensation beyond what they are do.
Watch all of the videos and let me know what you think
Is greed good or bad?
Are people inherently selfish or selfless?
Is making money itself more important than how you make money?
Yes, this guy is gay but think video makes a point about appearance vs substance (illusion)
I have used words to explain cash, cash flow, why cash is king and deal somewhat with ethics. Yet, some would argue that until you actually have to live it daily it is a concept difficult to understand. What I have opted to do in this post is show videos and I am hoping people will see and understand the analogies implied
Ok, so how many from this understand what a healthy cash flow should look like ergo a healthy economy?
How many of you also can see the correlation between our need and dependence on small business and their having healthy cash flow not forgetting that while we do need the larger(as represented by dams) focusing solely on them without the other (which ironically supply them) can lead to problems?
If you are not making money you are not in business
If you do not have clients willing to pay you are not in business
The purpose of business is to make money and a business is literally nothing more from a legal standpoint than a virtual person. So I guess you could argue that a business owner has a split personality and it is even a socially acceptable one not needing medication (smile!) I am sorry just needed to inject some humor – I know sort of dry but back to topic – the person of business if the make money – that is non negotiable and is a fact.
What is up for discussion is how you make money?
Lets focus on how you make money – regardless of the type of business you are in (goods or services) you can either make money one of two ways – earn it or steal I, worded less offensively – you can either provide a benefit for someone so that they are willing to compensate you in an equitable fashion for that solution or you can seek ways to take advantage of people and prey on their weaknesses exploiting them to only your own benefit. Here is the caught – the first is sustainable the latter is not and yet many choose strangely enough the latter and are shocked when their efforts implode.
There is an old saying “people do not care how much you know until they know how much you care” – so as a business owner you should seek to make sure you are putting the needs of your client first – by taking car of them you have the opportunity to create a positive cash flow and generate good will which in turn leads to more business. If you at some point want to grow your business you have to expand it by growing past the point of trading time for money. So long as you are in the day to day operation of your business you are your business and you are not really a business owners. Because we by nature like to keep our hands in everything this is the hardest thing for a business owner to learn – to let go and trust because lets face it many of us started our businesses to regain a sense of control or because we do not trust other people to have our best interest at heart. Often we started off as corporate employees with ambitions to climb the ladder and then we found out the price and in some cases it involved violating out ethics or selling our soul – not something we were willing to do. Something to be careful of and a group I am not really going to address are those that consistently self sabotage – not much I can say about them or to them except get professionally help.
As a business owner to make money providing solutions there are many things you must learn, the least of which is who you are. Your nature as a person already gives you a disposition regarding the type of business owner you will be – exploitive selfish people tend to run those sort of ventures, but as giving people tend to run service and solution oriented ventures. The key here is knowing yourself and then making a decision as to who you are and what type of business owner you are or want to be and whether you want a sustainable business.
So, the questions are:
Do you have a sustainable model?
How much good will do you as a business owner engender?
Are you the type of business someone would be willing to take a risk hiring due to your character?
All of these factors need to be taken into account in what you do and how you do it.
So tell me what kind of business owner are you
Does your business have substance or are you selling an illusion?
How do you plan going about making money – earning or stealing it?
Often as a business owner people assume we have more money than have. People often think we are rich when in fact so often our employees or suppliers make more than we do. Unlike the people we provide for our incomes are not steady and in fact our revenue is based not on the work we do as much as the solutions (be they good or services) we supply. Our true money is made because of our brains as such keeping a clear head is important.
This global economy has affected me and yet I am working to position myself such that to survive. Focusing on things that generate revenue and people committed to helping me and cutting loose of those things and people who are not. Reducing and eliminating expenses and working on generating more revenue.
Cash flow is important ant and mastering how it works for any business is important. For money to flow (like a river) there must be streams feeding it and it is important to create enough streams such that barring a catastrophic event your reviver is always supplied with fresh water (cash). Further the discharge should not be drained faster than the inflow or the river will eventually dry up.
On a personal note my goals are to erase my debts by the end of the 3rd qtr 2009 and by 4th quarter 2010 have 6 months of cash reserve.
A revenue or expense stream that changes a cash account over a given period. Cash inflows usually arise from one of three activities - financing, operations or investing - although this also occurs as a result of donations or gifts in the case of personal finance. Cash outflows result from expenses or investments. This holds true for both business and personal finance.
An accounting statement called the "statement of cash flows", which shows the amount of cash generated and used by a company in a given period. It is calculated by adding non cash charges (such as depreciation) to net income after taxes. Cash flow can be attributed to a specific project, or to a business as a whole. Cash flow can be used as an indication of a company's financial strength.
Investopedia explains Cash Flow
In business as in personal finance, cash flows are essential to solvency. They can be presented as a record of something that has happened in the past, such as the sale of a particular product, or forecasted into the future, representing what a business or a person expects to take in and to spend. Cash flow is crucial to an entity's survival. Having ample cash on hand will ensure that creditors, employees and others can be paid on time. If a business or person does not have enough cash to support its operations, it is said to be insolvent, and a likely candidate for bankruptcy should the insolvency continue.
The statement of a business's cash flows is often used by analysts to gauge financial performance. Companies with ample cash on hand are able to invest the cash back into the business in order to generate more cash and profit.
Definition - A measure of a company's financial health. Equals cash receipts minus cash payments over a given period of time; or equivalently, net profit plus amounts charged off for depreciation, depletion, and amortization.
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In its simplest form, cash flow is the movement of money in and out of your business. It could be described as the process in which your business uses cash to generate goods or services for the sale to your customers, collects the cash from the sales, and then completes this cycle all over again.
Inflows. Inflows are the movement of money into your cash flow. Inflows are most likely from the sale of your goods or services to your customers. If you extend credit to your customers and allow them to charge the sale of the goods or services to their account, then an inflow occurs as you collect on the customers' accounts. The proceeds from a bank loan is also a cash inflow.
Outflows. Outflows are the movement of money out of your business. Outflows are generally the result of paying expenses. If your business involves reselling goods, then your largest outflow is most likely to be for the purchase of retail inventory. A manufacturing business's largest outflows will mostly likely be for the purchases of raw materials and other components needed for the manufacturing of the final product. Purchasing fixed assets, paying back loans, and paying accounts payableare also cash outflows.
It is important to manage your cash flow because:
Smart cash flow management is vital to the health of your business. Hopefully, each time through the cycle, a little more money is put back into the cash flow cycle than flows out.
Our case study illustrates what can happen to your business if you don't carefully monitor your cash flow, and take corrective action when necessary.
Your profit is not the same as your cash flow. It's possible to show a healthy profit at the end of the year, and yet face a significant money squeeze at various points during the year.
What Is Cash Flow Management?
If you were able to do business in a perfect world, you'd probably like to have a cash inflow (a cash sale) occur every time you experience a cash outflow (pay an expense). But you know all too well that business takes place in the real world, and things just don't happen like that.
Instead, cash outflows and inflows occur at different times, and never actually occur together. More often than not, cash inflows lag behind your cash outflows, leaving your business short of money. Think of this money shortage as your cash flow gap. The cash flow gap represents an excessive outflow of cash that may not be covered by a cash inflow for weeks, months, or even years.
Managing your cash flow allows you to narrow or completely close your cash flow gap. It does this by examining the different items that affect the cash flow of your business. Examining your cash inflows and outflows, and looking at the different components that have a direct effect on your cash flow, allows you to answer the following questions:
How much cash does my business have?
How much cash does my business need to operate, and when is it needed?
Where does my business get its cash, and spend its cash?
How do my income and expenses affect the amount of cash I need to expand my business?
If you can answer these questions, you're managing your cash flow!
If you need any more convincing that cash flow management deserves your utmost attention, consider our case study illustrating what can happen if you have a cash flow gap.
Case Study: The Cash Flow Gap
This example shows how easily a cash flow gap can occur in a small business. A cash flow gap is a shortage of cash caused by the mismatching of cash outflows and cash inflows.
John makes custom furniture for professional decorators and furniture retail shops. In addition to himself, John has two other employees. John pays himself and his employees every other week (bi-weekly). When a customer places an order for a piece of furniture, John receives a 10 percent down payment of the total sales price. The customer is then billed for the remainder of the sale after the furniture is completed and delivered.
The total sales price of a recently ordered dining room set is $10,000. The material needed for this job is priced at $2,500 and will come from one supplier. This supplier offers a 2 percent discount if John pays for the supplies within 10 days after receiving them. John always takes advantage of early payment discounts.
The following graphic, illustrating the cash flow effects of the sale from start to finish, will help you identify John's cash flow gap. (Click on each of the blue or yellow bars to see a detailed explanation of business events affecting John's cash flow each week.)
Breaking down the sale of the dining room set, and tracing it step-by-step through the cash flow, identifies John's cash flow gap. In John's case, a cash flow gap starts on day 13 and continues to grow, reaching $4,450 just prior to collecting the customer's account. Although this example has been simplified, it's typical of the cash flow gap that occurs in many small businesses.
The cash flow gap creates the need for effective cash flow management. Effective cash flow management can help reduce the amount of time between John's cash inflows and cash outflows. This in turn, will help reduce or close John's cash flow gaps.
Profit vs. Cash Flow
A good way to learn respect for the concept of cash flow is to compare it to the idea of profit. As a business owner, you understand and strive to make a profit. If a retail business is able to buy a retail item for $1,000 and sell it for $2,000, then it has made a $1,000 profit. But what if the buyer of the retail item is slow to pay his or her bill, and six months pass before the bill is paid? Using accrual accounting, the retail business still shows a profit, but what about the bills it has to pay during the six months that pass? It will not have the cash to pay them, despite the profit earned on the sale.
As you can see, profit and cash flow are two entirely different concepts, each with entirely different results. The concept of profit is somewhat narrow, and only looks at income and expenses at a certain point in time. Cash flow, on the other hand, is more dynamic. It is concerned with the movement of money in and out of a business. More importantly, it is concerned with the time at which the movement of the money takes place. You might even say the concept of cash flow is more in line with reality! If you use the accrual accounting method, it is helpful to know how to convert your accrual profit to your cash flow profit.
To fully understand the difference, you need to become familiar with:
