As a business owner, you probably want to make more money. But when it comes to taking the steps actually to improve your profits, things get tricky. A lot of business owners hesitate when it’s time to act, even when the advice is simple.
Why does this happen? Let’s dive into my personal experiences that show how not understanding key parts of running a business, like cash flow, almost took me under.
The cash flow crisis that almost killed my business
Years ago, I thought my business was doing well. Sales were coming in, and I believed the numbers were strong. On paper, everything seemed great. But one day, I got a call from an angry supplier who hadn’t been paid in 90 days. That call was a wake-up call I never saw coming.
I was shocked. My controller was responsible for paying the bills, so why were they not getting paid? I didn’t know that my controller was stealing from the business and hiding unpaid bills from me. This had been happening for months, and I had no system in place to catch it.
To make matters worse, I hadn’t been checking our bank balance. I assumed that since we were making money, there was plenty of cash in the bank. When I finally took a look, I realized how wrong I was. Not only did we have no money, but we also were thousands of dollars in the negative.
This near-disaster taught me two important lessons:
- Embezzlement. My controller had been stealing from the company for more than six months. By the time I found out, the damage was done. I could have caught it earlier if I had been paying closer attention to our bank balance and payables.
- Not understanding cash flow. After finding the theft, I realized I didn’t understand cash flow. Our profit and loss statement showed a 5 percent profit, but when I looked deeper, we were actually losing money. That’s because I didn’t realize that loan payments don’t show up on the profit and loss statement, only on the cash flow statement. Not knowing this almost destroyed my business.
Learning how to read a cash flow statement is crucial. Cash flow is the heart of your business. If you don’t have cash, you can’t pay your bills, even if your profit and loss statement looks good. Understanding your cash flow statement lets you know exactly where your money is going and how to manage it better.
Making necessary changes
So, what’s stopping business owners from making the necessary changes? Often, it’s not just about not knowing how things work, like reading a cash flow statement. There are other reasons business owners hesitate. Let’s look at the most common ones and how to tackle them.
Sticking to what’s comfortable. We like to stay in our comfort zones, especially when there’s risk involved. Even if a new idea could boost your profits, it’s easy to hesitate because it feels safer to do what you’ve always done. While the familiar might feel safe, it can stop you from trying new, more effective strategies. Remember that stepping outside your comfort zone is often necessary to see real growth.
Fear of change. There’s a saying: “Better the devil you know than the one you don’t.” Many business owners are more afraid of the unknown risks of change than they are of staying stuck. Change is often uncomfortable, but it’s essential for progress. Start thinking about change as an opportunity to improve, not something to fear. If you and your team embrace change, you’ll open the door to new possibilities that can take your business to the next level.
Feeling overwhelmed. Running a business is already challenging, and the idea of making big changes can feel overwhelming. The solution? Break down changes into smaller, manageable steps. Focus on the tasks that will have the biggest impact first, and take it one step at a time. This way, you can make progress without feeling overloaded.
Chasing quick fixes. It’s tempting to focus on quick wins. But real, long-term success takes time. If you only focus on short-term solutions, you might lose sight of the bigger picture. Make sure you’re balancing quick wins with long-term goals. Celebrate the small victories along the way, but keep your eyes on where you want to take your business. Slow, steady growth is what will lead to lasting success.
Doubt about new ideas. If you’ve been in business for a while, it’s easy to get skeptical of new ideas, especially if you’ve tried things that didn’t work in the past. But it’s important to stay open-minded. Learn from your past experiences and keep looking for new opportunities. Ask for advice and listen to different perspectives. Staying open to new ideas can help you discover new ways to grow your business.
One of the most important changes to make
Among all the changes you could make to improve your business, learning how to read a cash flow statement is one of the most important. A cash flow statement shows exactly where your money is going, how much is coming in, and if you have enough cash to pay your bills. When you know how to read a cash flow statement, you can make better decisions, spot problems early, and avoid cash flow issues like the ones I faced. Understanding your cash flow will help you make sure your business has the financial health it needs to grow.
The bottom line
It’s normal to hesitate when it comes to making changes in your business, even if those changes could lead to more profit and success. But if you push past the fear of the unknown, take small, manageable steps, and stay open to new ideas, you’ll set yourself up for success.
One of the best things you can do for your business is learn how to read and understand your financial statements, especially your cash flow statement. It will give you a clearer picture of your business’s health and help you make smarter.
