How Does Your Cash Flow?
If you haven't read "Rich Dad Poor Dad" take a minute right now and add it to your to summer reading list. The focus is on personal finance, but so much is applicable to businesses, too.
Last week I talked about "Working ON your business not IN your business" and it resonated with many. That statement was coined by Michael Gerber in his landmark "E-Myth" book series. Small businesses create the brightest futures by moving from managing their cash flow to creating wealth. Here is a short history of business styles and how they work their money or cash flow.
Money Path of a Job-Preneur. A job-preneur is a business owner that has created a job for herself. Typically when the owner expires or retires, the business does likewise. The most important information this business owner looks for is cash flow - what is coming in and what goes out. Do we have enough to pay all expenses and maybe put some aside for retirement? If this is your business, just being clear on what it is and planning for the future is important.
Money Path of the Business Owner. The business owner that has some employees and a plan for growth will likely be looking carefully at not only the cash flow of the business but also the Income Statement. The typical business owner will be aware of the liabilities associated with growth and asset acquisition. But few businesses in this category have "income producing assets", they are just large expenses. For example, the company car is an asset and maybe it has a loan, but does it really generate any cash flow? If these businesses are to be sold, the price is usually not much beyond a multiple of the business' profits. No Proft? Difficult to sell over the fair market value of the assets. Again, knowing what your exit plan is may mean that the business is what you want it to be. If you want more from your business, read on.
Money Path of an Entrepreneurial Business. Here the owner is striving to not only pay all the bills, pay down the liabilities and build assets but building a business where the owner works ON the business. A business that builds for the future is managing the cash flow, the income statement and most importantly the balance sheet. The key to getting assets to grow and generate income is having repeatable processes. These processes are for everything from answering the phone to providing outstanding service. If it can't be repeated, you don't have a salable process. These processes free the owner to be a leader and not just a worker-bee. The beauty of buying a franchise is that you are purchasing a tried and true way to have an income producing asset! Think about how you can create a business that is easy for someone else to come and replace you. When you know you can walk away and the cash will keep flowing, you have built a business based on wealth creation.
Being clear as to what type of business you are building means you will have a unmistakable understanding of what to expect. Businesses, like children, can only produce what we train them to do!
Copyright 2011 Linda Lucas Fayerweather
http://www.changinglanes.biz/
419-897-0528
