You’re labouring day in and day out. You’re getting customers. You’re selling. Maybe you’re even growing. But how do you know if your business is healthy?
More money may be coming in, but that doesn’t automatically make you better able to pay your bills—or yourself.
A growing business usually means your expenses are growing too. And without proper cash-flow management, the burden of more staff, more overhead, or more supplies can hurt your business.
A U.S. Bank study found that poor cash-flow management or a poor understanding of cash flow contributes to 82% of small business failures.
If you want to be continually confident about the health of your business, learning how to manage your cash flow from the pros is your next step.
If you want to get a quick pulse on how healthy your cash flow is, do a Profit First Instant Assessment. It tells you if you’re hitting targets in four fundamental categories:
- Profit
- Owner’s pay
- Tax
- Operating expenses
How to do the Profit First Instant Assessment
Step 1: Use your company’s real revenue for the last 12 months. Note:
Real Revenue = Total revenue (top line sales) – Materials & Subcontractors used to create and deliver your service or product – Employee wages
Step 2: Pick the column that corresponds to your real revenue in Figure 1.
Step 3: Complete the ACTUAL column in Figure 1 with your actual numbers for the last 12 months.
Step 4: Using the percentages identified in Step 2, fill out the PF% (Profit First percentage) in Figure 2.
Step 5: Multiply the real revenue number in the ACTUAL column with each PF% and enter the resultant number in the corresponding PF$ row.
Step 6: For each row, subtract the PF$ number from the ACTUAL number and put the result in the corresponding row in THE BLEED column. (Note: You may get negative numbers.)
Step 7: For THE FIX column, put the word “increase” if the corresponding number in THE BLEED row is a negative number, and the word “decrease” if it is a positive number.
| A | B | C | D | E | F | |
| Real Revenue Range | $0–$250K | $250K–$500K | $500K–$1M | $1M–$5M | $5M–$10M | $10M–$50M |
| Real Revenue | 100% | 100% | 100% | 100% | 100% | 100% |
| Profit | 5% | 10% | 15% | 10% | 15% | 20% |
| Owner’s Pay | 50% | 35% | 20% | 10% | 5% | 0% |
| Tax | 15% | 15% | 15% | 15% | 15% | 15% |
| Operating Expenses | 30% | 40% | 50% | 65% | 65% | 65% |
| ACTUAL | PF% | PF$ | THE BLEED | THE FIX | |
| Top Line Revenue | ——- | ——- | ——- | ——- | |
| Materials & Subcontractors | ——- | ——- | ——- | ——- | |
| Real Revenue | 100% | ——- | ——- | ||
| Profit | |||||
| Owner’s Pay | |||||
| Tax | |||||
| Operating Expenses |
Interpret your results
Now that you know which healthy-business targets you’re hitting, and which areas could use a little work, you can see where you need to allocate more or less money (increase or decrease) and by how much (look under THE BLEED) for each account.
This was the quick-and-dirty version of what a Profit First Professional can do for you, but even small changes can reduce the stress on your cash flow.
A professional Profit First Assessment will reveal more opportunities to better your cash flow and maximize your profit.
This detailed assessment will:
- Show us the history of your business’ financial performance.
- Give us the data to create a blueprint mapped specifically for your business, so you’ll reach the targets you’re missing.
If you partner with us, we’ll be there every step of the way to help you make decisions that keep you hitting your healthy-business targets.
In your corner,
The GuYDanS Team
