Managing Cash Flow Complexities – Part 3: Establishing Priorities

Used by Permission - Man in a mazeEstablishing priorities is critical to just about every facet of our lives.  I have a good friend who gained a lot of wealth by speculating in commodities futures.  Over many years he built up a lot of cash flow, but then in a short series of bad trades he lost just about everything in his life, including his wife, his fortune and his health.  There is a famous quote that says: “It is worth nothing for a person to have the whole world, if he loses his soul.” If you don’t establish priorities and goals and if you don’t have a good plan, you may have a fast and enjoyable ride…but when you get to the end of your trip, you may realize that you were headed in the wrong direction.

One of the CEOs that I’ve worked with introduced me to a motto: “If you don’t have a plan B, then you don’t have a plan.”  When it relates to cash flow planning, there is much more work than just pulling out the Excel spread schedule and plugging in the numbers. Here are some suggestions with regard to the complexities of cash flow planning and setting priorities:

1. In establishing priorities and plans, think outside the normal box.  Many times business owners or CEOs focus their attention on business plans and business cash flow. However, as a CEO or business owner, this is not your entire life.  You have family, friends, personal goals, desires, dreams, etc..  Many times your ultimate goal does not involve working at the same company until you die at your desk.  If your number one priority is family (for example), why would you leave that out of your cash flow planning.  If your overall cash flow planning involves not only your company’s needs, but also your immediate and long-term needs for family, emergencies, retirement, starting that other business that you’ve always dreamed about, etc.. then you end up with a plan that is more holistic and better suited for your long-term plan.  Not everyone needs to see the whole plan (especially the personal part), but that piece needs to be there.

2. A good cash flow plan also includes a Plan B, and maybe a Plan C and D.  How many times have you known of a great business person who was very successful at just about everything, and then hit an unexpected fork in the road… or a dead-end?  Whether it’s an economic downturn, the loss of a key customer, an uninsured loss, cancer, depression, a death in the family, bankruptcy, or some other fork in the road… what is your plan?  If you don’t have a plan B… you may realize when that when the fork or dead-end comes, you really never did have a good plan to begin with.  I recently met a CEO who has five children (including one on the way), a wife, a very successful business … but no health insurance or significant business insurance.  Sometimes as CEOs and business owners we assume that we will live forever and that the cash flow will always be good.  What would happen to your company if something happened to you today that prevented you from ever going back to work?  What would happen to your family; to your long-term goals and dreams?

3.  Plan for taxes.  How many times have you thought that you and your business had a great year from a cash standpoint, only to find out that you didn’t include a plan for taxes in the equation? I’m not just talking about normal expected Federal and State income taxes (these are taxing enough).  From an economic standpoint, have you planned for the sales tax and transaction privilege taxes in each jurisdiction (e.g. city, state or country) where you company may have nexus?  Have you planned for the tax penalties or regulatory burden that your company may face from ACA (the “Affordable Care Act”)? Do you plan for your quarterly estimated self-employment or payroll-related tax payments? From a personal standpoint have you considered the tax or toll on your health that your business is causing? In our recent annual partner’s meeting, the founder and managing partner of B2B CFO® (Jerry Mills) encouraged each of us 200+ partners nationally to get an annual physical exam.  Why?  Because we also need to plan for things like stress and illness that may tax our physical bodies (in addition to all the economic taxes that we all face).

4.  Realize that plans will change.   Back in college, we had a guest speaker that made a particular impression on me; an author by the name of Jack Exum who constantly reminded us in a humorous way that “Things Change.”  Jack passed away about five years ago, but I will never forget his advice (or you might want to call it a warning, depending on your perspective).  After all of your work in establishing priorities and coming up with a Plan A, B and C… and your plans for dealing with unexpected contingencies, please remember that “things change.”  In the business world we deal with this by regularly updating rolling twelve-month or two-year cash/budget projections.  As things change unexpectedly, you may need to change priorities and alter your course.  As an illustration, in the year 2000 I started a residential construction and land development company.  In 2004 I sold off the company and focused my efforts on another company that I had started in the publishing industry.  By 2008-2009, just about every contractor and subcontractor that I had worked with in my former residential contracting business had either gone bankrupt or had left the state.  It’s not because these people were bad business people, or because they didn’t have good business/cash flow plans.  It was because of the devastating recession that hit unexpectedly.  Things change. Often times we will just need to adapt to the change.  Your long-term priorities and goals may never change, but how you attack them on a day to day basis will certainly change.

If you would like some help with managing cash flow complexities and the related planning strategies, please contact any of our 200+ partners at B2B CFO®.

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