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I recently met with a business owner and I asked my standard first meeting question, “So what information do you use to run your business?” After almost ten years of asking that question to business owners, I continue to be amazed at the responses I get.

“Well, I know I have some reports. Let me see if I can find them…oh, here they are.” Hands me sealed envelope.

”Data, have we got data!” Then he hands me 30 pages of metrics and reports.

And then the infamous, “Here you go – hot off the press. Here are my tax returns – federal and state” (this is usually in September and the returns had just been filed for the prior year).

When I was growing up in the CPA world, and then as I started in the public company world, I noticed we spent a lot of time on the income statement and the balance sheet. Everyone does. That is where we all got our start. CPAs ask for them. Bankers ask for them. Business owners have been conditioned that these are the key reports they need to run their business.

So after working in many successful business environments for most of my career, what have I learned?

Those are the wrong reports.

It’s the cash flow statement that you need to successfully run your business. Then once you get it, just go to the line that reads “Cash Flow from Operations”. This is where the answers (and the questions) are found.

I have found that most business owners don’t look at their cash flow statement. Some actually don’t even have one or know how to read it. It often is not found in a standard set of financial statements and there certainly isn’t one in a tax return.

Even if there were there, business owners typically would not look at it because they usually don’t understand it. Yet, it is the key to running your business.

Not long ago I met with a potential client that was a business owner. I made reference to Cash Flow from Operations as being the most important number in a set of financial statements. The owner looked at me and told me I was dead wrong. He pointed out that in the last three years that number had never been very big so it can’t be important. (He was about 30 days from being pushed to managed assets by his bank).

Maybe if his Cash Flow from Operations had been higher, he would not have been in such bad shape.

Cash Flow from Operations tells the whole story. It starts with revenue and ends with the amount of cash that your business generates from revenue generating activities. Cash, not profit. Plus, it does not count the cash you borrowed from your bank, or that you got from your investors.  Just pure and simple, how much cash does your business generate.

Too often cash gets tied up in accounts receivable, or in inventory. Cash Flow from Operations shows you that. On occasion, when we catch up payables, we use cash. Cash Flow from Operations shows you that. Sometimes, overhead is too high or margins too low. Cash Flow from Operations shows you that.

Let’s make sure we help our clients and business owners everywhere know the truth – whether they like it or not. Cash Flow from Operations is the key measurement in any business.

And if you don’t have Cash Flow from Operations, you may not have a business for very long.

So what do you think? If you have any cash flow experiences, feel free to comment.

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