"I went to a bookstore and asked the saleswoman, 'Where's the self-help section?' She said if she told me, it would defeat the purpose.” -- George Carlin

Too busy to clean the barn because all the horses are running loose? Our recent series featuring the Four Horsemen of the Apocalypse was a grim reminder that regardless of how many people are lined up outside our door, how many calls we have to return, whether we’re in the top ten for inbox clutter – we’re not absolved of our duty to master our most precious resource: cash flow. That’s why Warren Buffett calls it the “lifeblood of business.” Whether you're unable to make payroll, can't finance growth, can't raise money or find that your business value is a black hole, mastering this process is the centerpiece of excellence.

So, what do we do about it? Although I didn’t start out to create a long series about business finance, so many of you have asked about how to make these improvements that I’ve decided to create a path to help you get there.

The first step on every knight’s journey is to slay any dragons in his path … so we’re going to kill off a few misconceptions about business finance. The most important is that you can learn these basic principles. As I’ve said before, you don’t have to be an MBA, CFO or accounting major to understand these essential concepts. If you focus on the core principles, you can direct your team and be sure that everyone’s paying attention to the right things.

Another dragon in our path is EBITDA. I wrote the Death to EBITDA column a few months ago to eviscerate the belief that EBITDA is a useful placeholder for cash flow, which it isn't. Let me state that in big bold words: EBITDA is not a placeholder for cash flow. If you have any questions after reading that column, let me know.

A knight (in the modern world, it is gender neutral) won’t last long without a sharp sword, so we need to understand comprehensive cash flow and how it intersects with the P&L and balance sheet. We recently added a new video to our Financial Adrenaline video library entitled Follow the Money, which is a visual primer that explains this concept.  It’s a good place to start, and it only takes about six minutes – no financial jargon. It’s all done with visual tools to make it very easy to understand how to apply it to your business.

As a knight doesn’t travel without his squire, you can’t make this journey without the balance sheet scrolled up and tucked in your tunic. I’ve recited in previous columns that business executives spend most of their time looking at the income statement, and I’ve explained why I think that’s the case. Unfortunately, you really have less control over the P&L than you do the balance sheet, which is the bedrock of comprehensive cash flow. How cash is invested shows up on the balance sheet, and changes that occur there form the cornerstone of free cash flow. You’ve got to take some time to understand balance sheet fundamentals because there is absolutely no substitute.

This may seem too elementary to some, but every week I encounter a company that doesn’t use an accrual-based accounting system or has a hybrid system even they don’t understand. Without this key, the vault will forever remain sealed, and you’ll never know whether your revenue is profitable or be able to tell if one division or product line is making money or not. It certainly makes no sense to leave that to chance.

So, feel free to visit the special Financial Adrenaline section at exkalibur.com. See what would really help you pull the sword from the stone and become a Cash Flow Knight. Let the journey begin.



Lary Kirchenbauer is the president of Exkalibur Advisors Inc., providing practical business strategies for family and other privately owned businesses in the middle market. Exkalibur works closely with senior executives and their businesses at the intersection of leadership, finance and business strategy and uses the Business Ferret framework to help companies use strategic finance to drive improved business performance. Lary also hosts the Exkalibur Leadership Forum for leaders of middle market companies in the North Bay. Please visit www.exkalibur.com for a library of valuable resources, articles and insights or join the Exkalibur fan page on Facebook.