Cash is King/Queen, Know Your Numbers, No Financial Surprises: What Do These Terms Mean and Why Are They Important

Cash is King/Queen!

You’ve heard this expression, but what does it really mean?

Simply put - a business needs enough cash coming in to pay its bills to continue to operate.

Sales are great, but even more important is to be paid for those sales on a timely basis. This translates to cash flow in.

With cash coming in, the business can pay its expenses on time: employees, suppliers, other vendors - and this is cash flow out.

And if cash from sales is not enough to cover expenses - then you need to explore outside sources of cash or financing. You can try friends and family, angel investors, venture capital, corporate partners, or banks.

Finally, you need to track and forecast your future cash flow to be sure your business will continue to have enough cash to operate.

Why is this important? Well, 82% of small businesses that fail, do so because of cash flow problems.

A cash flow forecast in simply assigning cash inflows and outflows to specific time periods using the formula:

Beginning cash balance + cash in - cash out = Ending cash balance

And be sure to check your numbers for accuracy

Know Your Numbers

This is a critical piece of advice for startups pitching to investors because no one is going to invest in your startup if you don’t know your numbers.  I’ve seen many founders blow it because they did not know their numbers and could not answer investor questions.

It is also critical for both startups and bootstrapped companies because no one:

  • Cares about your business like you do

  • Knows your business like you do

You can only make informed decisions if you know your numbers.

You need to know the:

  • Key financial drivers for your business

  • Financial health of your business

General key financial drivers include: sales, net profit margin, sales growth year over year, and customer acquisition cost - but many are business model or industry specific and you need to know those - especially if you are fundraising.

Knowing the financial health of your business is also critical. While many measures are available - I rely most heavily on cash flow. The goal is to have more cash coming in than going out - and any shortfall is offset by sufficient financing.

And if time is an issue, get outside help! But, don’t delegate and forget.

I meet with clients as often as once per week to once per month to review financial results and forward looking projections. We keep our meetings efficient and productive.

No Financial Surprises

Boards of Directors don’t like “financial surprises.”

In fact, “no surprises” topped the list of feedback in What Audit Committees Want From CFOs which was published by Deloitte.

“While surprises are generally inevitable in the course of business, audit chairs and committees want the CFO to manage the avoidable issues and inform them in a timely way when the unexpected occurs,” the report said.

It can be even more difficult to manage surprises when economic times are uncertain, but CFOs can take the following steps to minimize surprises:

  • Maintain relationships with the CEO and Board of Directors outside of regular meetings.

  • Communicate often with the CEO and management team so you are quickly aware of any issues.

  • Communicate often and be transparent with your Board - this may be several times a day during periods of economic uncertainty.

  • Keep your financial data current and correct

  • Know your numbers and anticipate what might trigger a surprise

  • Know where the risks are in your business and anticipate what could go wrong

  • Have financial cushion and a plan for additional liquidity

  • Plan for a variety of financial outcomes - through scenario planning and modeling and communicate the options.





Lisa Sussman