January 2023

Cash is the rocket fuel that powers growth for all kinds of businesses. Leaders must understand where their cash goes and where it’s going to come from. They need to plan for those negative and positive cash flows and they especially need to plan ahead if they will need external funding.

There are two broad types of sources of cash for a business — inside funding and outside funding. Inside funding can include cash provided personally by the management team, but more sustainably a healthy business will generate cash through sales that will more than cover operational costs. Outside funding includes cash borrowed from lenders (debt), cash provided by investors in exchange for equity (ownership) in the business, and sometimes government or private grants.

Cash flows out of the business in three types of activities. The most consistent and significant are the expenses of operating the business. The most strategic outflows are investments made in the business. Finally, the company may use cash to pay back loans or to distribute dividends to investors.

Read the full article here.

Cash is the lifeblood of any business. One of the most common reasons businesses fail is because they run out of cash. A company can consistently report a profit and yet still go out of business because it runs out of cash. So, it’s important to carefully manage the cash coming into the business and the cash flowing out.

There are three standard financial statements that businesses use to understand and explain the health of the business. These are the cash flow statement, the income statement, and the balance sheet. None of these statements, on their own, can give you a complete picture of the health of the business. Especially in smaller businesses, cash is critical so I find the cash flow statement the most important to watch to understand the immediate health of the business, but neither the balance sheet nor the income statement can be ignored.

By the time I earned my MBA, I had spent a couple of decades looking at and analyzing these three types of financial statements. Since my undergraduate degree was in engineering, I had to take basic accounting pre-requisite classes before starting the MBA program. I found it fascinating to learn how these three financial statements work so seamlessly together. 

In the article linked below I provide a brief guided tour of these three financial statements and what they tell you about the health of your business.

Read the full article here.

Financial Intelligence by Karen German and Joe Knight is an incredibly helpful book for managers at large companies to make sense of the accounting and finance drivers shaping their work. The book certainly covers the basics of how to read standard financial reports, but goes much further. The book is especially strong in helping managers to know what questions to ask of accounting and financial professionals and to understand how their decisions can improve the financial performance of their employer. I took my first “finance for non-financial managers” class nearly 30 years ago and since then have earned an MBA with a finance emphasis and yet this book still helped me to better understand some concepts. It’s an easy to read book that is well worth the time investment. I strongly recommend it.

Read my full review here.

Unleash Your Cash Flow Mojo by Sandra S. Simmonsis a book for business owners who probably haven’t had a lot of training in financial management. It provides a simple and straightforward approach to cash management that likely would keep many otherwise challenged businesses out of trouble. The book costs $10 on Amazon (either paperback or Kindle) and only takes a couple of hours to read — likely a worthwhile investment for the vast majority of small business owners who have focused more on doing their company’s work than on the details of cash management, and therefore might find themselves in a cash crunch at some point in the life (and possibly near-death) of their business.

Read the full review here.

I like books. At ClearPurpose, I often write brief reviews of books I’ve recently read. So far, I’ve written 74 reviews and those reviews are usually pretty positive — likely due to selection bias. But which books have actually been the most helpful to me in understanding and explaining business? In my various articles at ClearPurpose, I’ve referenced 134 different books.

Here are the 10 I’ve referenced the most (along with the links to the articles that reference each book):

• Built to Last (2020–07–01, 2020–07–24, 2020–08–11, 2020–08–17, 2022–03–14)
• Competitive Strategy (2020–06–28, 2020–07–01, 2020–07–27, 2020–09–03, 2022–07–19)
• Competing for the Future (2020–04–13, 2020–04–22, 2020–08–04, 2022–02–28, 2022–03–14)
• The Lean Startup (2020–04–24, 2020–05–12, 2021–03–11, 2021–03–27, 2022–10–25)
• Traction (2021–12–24, 2022–01–05, 2022–07–11, 2022–07–19, 2022–08–02)
• The Startup Owners Manual (2020–04–24, 2020–04–29, 2020–05–13, 2020–08–25, 2020–09–04, 2021–03–05)
• Business Model Generation (2020–04–06, 2020–04–08, 2020–04–15, 2020–04–23, 2020–04–23, 2020–05–01, 2020–07–01, 2020–09–10, 2022–07–19, 2022–10–25)
• Blue Ocean Strategy (2020–04–06, 2020–04–20, 2020–05–28, 2020–05–29, 2020–07–01, 2020–09–01, 2021–04–26, 2021–09–30, 2022–03–14, 2022–09–05, 2022–12–30)
• Value Proposition Design (2020–04–06, 2020–04–08, 2020–04–15, 2020–04–23, 2020–04–27, 2020–04–28, 2020–08–27, 2020–09–04, 2021–02–20, 2021–03–13, 2021–11–26, 2022–09–05, 2022–10–25)
• The Bible (2020–04–06, 2020–04–21, 2020–04–23, 2020–04–29, 2020–05–11, 2020–05–12, 2020–08–18, 2020–08–19, 2020–08–20, 2020–09–02, 2022–02–14, 2022–03–21, 2022–04–04, 2022–05–02, 2022–05–30, 2022–09–09)