Word of the Day: Cash

Word of the Day: Cash from Blumer CPAs on Vimeo.


It is word of the day. And you know what we do as a firm, we handle all the financial aspects of agencies that are growing. We want to keep all of their accounting in line. We want to help them report on things and that’s because of today’s word of the day, which is cash.

Cash. Cash is just a result of an indicator of the value that you are to the market that you serve. It’s the price you’re willing to or able to put on the things you do for your clients and when they pay you, then they’ve seen the value in what you’re doing. But cash in the bank is not a determiner of profit. Accounting is where you figure out how you’re going to be taxed. Keeping your accounting up to date on a regular basis, which is what we do. And the bigger you get, the more team you have, the more complex your projects, the bigger the number of clients you have. Anything that adds complexity to a service based business model just blows up your head if you’re looking at cash. Because cash is going up and down, up and down, it’s really high swings in cash.

And so accounting, the accounting, financial reporting is where you go look and see how your business is doing. And even there you have to be careful because that’s not a determiner of cash movements unless you’re looking at a cash flow statement or something like that. You want to make sure you don’t look at your cash as a determiner of how you’re doing. Cash just goes in the bank and comes out of the bank. It’s neutral. Cash is neutral. It just does what you tell it to do. But a profit and loss statement, your accounting being done accurately, it is telling you something. It’s saying for this period of time, here’s how much money you made and you’re going to be taxed on it. Or you have made a loss. You spent more than you made irregardless of what your cash says.

If you’re looking at your cash balance, that’s going to blow you up. That is not going to be a way you can be safe. Now, so how do it? If you can’t get your accounting in order, which you should, how do you do it? You want to get your cash operating account and start pulling some money out of it and put it in a savings account. You need two to three months worth of savings and you just add up your expenses on your profit and loss statement maybe for the past six months. Add them all up, all of your expenses, divide by six. That gives you your average expenditure per month and you need two to three of those in a savings account basically to survive a downturn.

Because looking at your cash balance that’ll have $100,000 in it one day and it’ll have a loss, it’ll have negative 5,000 in it the next day. It doesn’t mean anything. Now it does mean you’re out of cash. It does mean that. But financial statements are what tell you what’s happening. That’s where you figure out what the heck you’re doing and why. That’s where you can learn the patterns and that’s where you can figure out. Basically accounting systems are a closed system as as Greg Crabtree likes to say in his book, it’s a closed system. That means you’re going to be recording a debit and a credit. You’re always going to be recording where things go. An accounting system is a truer picture of the result of what you’ve been doing with your market and your clients and your vendors related to your cash.

Your cash doesn’t tell you anything. It’s neutral. If the swings are high, then you want to start pulling money out for things like savings and you want to start pulling money out for taxes and things like that. And if you go, “I can’t do that,” then probably you’re overspending somewhere. That is probably what’s happening. And a lot of times that’s the owner. The owner is overspending and the owner has to cull down their lifestyle so that they can run a business that is sustainable and healthy. And that’s hard to hear. That’s hard to hear.

But that’s what you got to do if you want to run a business longterm. But you know what? You can do it. Make those changes in the next few years so that you can run a business for the next 30 years. Not many people will do that, but you do have to kind of get rid of the things you want, bring your lifestyle in line as an owner so you don’t spend all of the profits and then you don’t have money for taxes and you don’t have money for investment. You don’t have money for growth. And if you hit a downturn, your cash is all gone. You’re going to be out of business.

Look at your financials. That’s what we do. We build financials for people on a regular basis so they know. They know truly how well they’re doing. And cash again is just a neutral vehicle that goes up and down. Don’t run your business on cash. And if you need help, that’s what we do. You can hit us up at info at Blumer CPAs and we’ll bring in, we’ll sign a 12 month agreement and we’ll take care of you for a whole year and make sure we can keep you in line and take care of you so you know what’s going on. I hope that helps. Don’t run your business on the cash bank account. That stuff’s going lie to you. Your financials are not. Make sure you’re getting that done on a regular basis and look in that. Looking at that in ways that is teaching you insightful information. I hope that helps. Thanks so much. We’ll see you.

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