Where the Hell is my Cash?

"My income statement shows a profit and I'm constantly busy. SO WHERE THE HELL IS ALL THE CASH?!"

- Business Owners Everywhere

The following is a post from my friend and colleague Tony DeSimone. If you have ever uttered the words above take special note to this post.

August 25, 2015 

Anthony DeSimone

WHERE THE HELL IS ALL MY CASH?!

  

I'm currently working with the owner of a restaurant.  Back in 2013, Jeff was feeling very confident about his business because the restaurant made a profit of about $50,000. That confidence grew even stronger as Jeff's business continued to do well at the start of 2014.  All of that changed, literally overnight, when tax time came and Jeff had to pay his 2013 Federal and State tax bill.  

He quickly realized he had no cash and then made a statement that many business owners make. He said, "My income statement showed a profit, we were constantly busy but we never seemed to have any cash. Where the hell is all the cash?!"  

(My comment: This a common problem for many business owners and the main reason only 20% of small businesses make it to their 5th year anniversary. They make a profit but they run out of cash.)

One of the primary reasons this occurs is because of the disconnect business owners have between how the inflows and outflows of cash get recorded on the financial statements.

The income statement shows only half of the cash picture.  Many business owners (like Jeff) ignore the balance sheet. It's a common mistake.  The income statement and the balance sheet are connected. Even if you don't understand how, or why, from this point forward, just remember that those two statements are connected and in order to get a full picture of how your company is doing, you have to understand how to read both income statement AND balance sheet.  

The two together make a great pair but even trained CPA's have to learn how to read those two documents to see where the cash went. So how can I expect you to learn that? I can't - read on.

Jeff thought he had $50,000 in cash because of his $50,000 profit but during that year, he used most of that cash when he paid down some of his debt and purchased new equipment in the restaurant in the amount of $45,000.  Paying down the principal on his debt and buying equipment are not accounted for on the income statement, therefore, they did not affect his  "profit", both of those actions were accounted for on the balance sheet.  Had he understood both reports, he might have figured it out but, like many business owners, he didn't know how to read those reports.

OK, I know what you're thinking - "This is beginning to get real confusing" - and that's exactly why so many business owners ask, "Where the hell is all the cash?!"

The concept behind how the balance sheet and income statement work as a pair is difficult enough for students majoring in accounting - it's far more difficult to teach an individual who not only isn't majoring in it but really has no interest to learn.  

There was no way that I was going to be able to teach Jeff the intricacies of how the income statement and balance sheet work together - so I didn't.  Instead, I taught him how to properly track and forecast cash flow.

So my advice to you if you're struggling with getting your arms around where all the cash is, don't waste your time trying to learn how to read the income statement and balance sheet.....at least, don't start there.  

Start with focusing on cash flow. It's far more advantageous and here's why:

• There's no disconnect between the inflows and outflows of cash and where it gets recognized on the income statement or balance sheet.  
• It doesn't matter if you used the cash to buy equipment (a balance sheet item) or to pay the utility bill (an income statement expense) because when focusing on cash flow, every dollar received or spent is treated the same way.
• When focusing on the "ins" and "outs" of cash, the timing issues created with accrual accounting are nonexistent
• It's easier to track cash on a timely basis
• The owner doesn't need to wait for a report to be created at the end of the month, the owner can review the bank cash detail immediately
• You can operate your whole business with just focusing on and tracking cash

When I met Jeff, his line of credit was tapped out at $75,000 and he also borrowed $70,000 at a very high interest rate from his credit card company.  He was struggling to pay payroll and losing sleep.  

Jeff had absolutely no experience in accounting but he learned how to operate and maintain the very user friendly cash forecast spreadsheet in three, one hour sessions. Once fully implemented, Jeff had a tool that gave him clarity on his current cash position and, more importantly, the expected cash balance months into the future.  

Jeff was no longer paralyzed with uncertainty and immediately began making decisions and changes which played a pivotal role in helping him to completely pay off his credit card balance and line of credit debt.

But, even without implementing the cash flow spreadsheet, here are some things, you can do to get your arms around your cash and understand it better:

• QuickBooks (and most other accounting software programs) creates a standard Statement of Cashflows report. Print it out and review it at least monthly.  
• This report will show you the 'ins' and 'outs' of all the cash from both the income statement and balance sheet.
• Upon receiving your monthly bank statement, immediately review it for anything that looks unusual.
• Review your payroll registers every pay period for anything that looks unusual.
• If you ask your bookkeeper a question and the answer doesn't feel right - investigate further until you're satisfied.
• Upon receiving your monthly credit card bill, immediately review it for anything that looks unusual.
• Don't give your bookkeeper check signing authority - sign your own checks.

So forget the balance sheet and the income statement.  Start with focusing on cash flow! Master that and you'll never ask "Where the hell is all the cash?!" again.

You too can have the same vision and clarity to confidently make the proper changes in your business and begin slowly to actually see a growing cash balance on your bank account.  

My addition:

If you are interested in learning more about his cash flow forecasting tool, you can contact Tony at 

tony@youretheexpertnow.com

Regards,

Rick Wallace

What's an 'A' Player and What to Do with 'B' Players

"In the minds of great managers, consistently poor performance is not primarily a matter of weakness, stupidity, disobedience, or disrespect. It is a matter of miscasting."

- Marcus Buckingham

"Up to 87.7 percent of America's workforce is not able to contribute to their full potential because they don't have passion for their work." 

- Deloitte Center for the Edge

From Rhythm Blog :

If you read our blog often, you know that we are fans of Topgrading, and we frequently talk about hiring and developing A Players. In a previous post, I gave an example of one of our clients who did an audit of all of their employees and created a KPI for "% of A Players." If you aren't familiar with Topgrading, you might be wondering about this term - "A Players." What does it mean?

One definition of A players is your team members who are performing very well and living the company's core values. A more technical definition is that they are the top 10% of talent available in the pay range for that position. If you decide to use this term in your organization, get clear about your own definition so that everyone can be on the same page when you talk about A Players.

Even if you're familiar with A Players, you may not be familiar with the different types of A Players. Topgrading expert Jenny Vargas taught our consultants these levels in one of our weekly Keep Smart sessions: 

• A1: These team members have very high potential. They could be promoted 2+ levels in your organization.
• A2: These players are also performing well and promotable, but probably only one level up from their current position.
• A3: These are your team members who are a great fit for their current position. Maybe they have no desire to be promoted to a different role because their current position suits them perfectly.
• A Potential: This is someone who has the potential to function at an A level in the foreseeable future, like within the next 6-12 months, depending on the situation. This might be the case for brand new hires still training for their new positions. 
• Non-A Player: These are team members who do not exhibit the potential to function at an A level in the foreseeable future.

For all the types of A Players, it is critical to provide ongoing developmental opportunities to keep them engaged and happy and give them the skills to attain their career goals. It is especially important to provide the right training and resources to team members who have "A Potential." These people need coaching and support to function at their highest level.

What about these non-A Players?

• C players are not performing and not living the core values. Ideally, these should be screened out in the interview process and never make it to your team. If you conduct an audit of your talent and find that you do have C Players on your team, it is usually best to "free up their futures" so that they can pursue other opportunities that could be a better fit for them.
• B+ players are living the core values but not performing well. Dig in a little to find out what's going on here. Is it a skill gap; do they genuinely not know how to perform well in their current role? Do they love the company but find the work draining, tedious, etc.? These team members may need to switch to a different role in the organization that they have the skill and desire to master. With some coaching and skill development, some of these players may actually have "A Potential" in their current role.
• B- players may be highly skilled and top performers, but they don't live your core values. It can be especially challenging to work with these people because culture is far more difficult to change than skill. And, it is usually very difficult to let go of someone who is performing well and producing results.

While it is pretty clear what to do with A Players (grow them) and C Players (fire them), it can be tricky determining the right path for B Players. B Players are what Jenny called "Revenue Vampires" because it takes two B Players to do the work of one A Player. B Players also suck a lot of time and energy from the A Players around them.

Here's what to do with your B Players:

• Address the problem quickly. According to an HBR article by Sull, Homkes and Sull, "A majority of the companies we have studied delay action (33%), address underperformance inconsistently (34%), or tolerate poor performance (11%)." Waiting to address issues with team members only compounds the problem by negatively impacting the A Players who work with these B Players and by making the conversation more difficult.
• Have an honest conversation about the specific results they are not delivering successfully. Clarify your expectations about their performance, and assess for a skill gap that could be causing them to under-perform.
• Coach them to develop new skills or habits that will make them more successful in their current role.
• Determine whether their current role is a poor fit not because of skill but because of the person's particular strengths and interests.
• If the person is a good fit culturally, you may be able to move them to a different position that is a better fit for them where they would have A Potential.
• If you don't have a performance issue, but you do have a culture fit or core values issue, have an honest conversation about that, too. (You may find Crucial Conversations skills helpful in initiating a difficult conversation like this one.) Having a Job Scorecard that includes your Core Values may make a conversation like this one easier.
• Determine whether the person is willing and humble enough to work on the specific issues that are clashing with your core values. With an awareness of exactly how their behavior does not match your expectations based on core values, the person may be able to work on developing some interpersonal skills to help them fit better in your company culture.
• If the core values misfit is not one that can be remedied with coaching and skill development, then it is usually best to let this person go, even though it can be difficult to say goodbye to a top performer. The good news is that if you replace them with an A Player, that person will be twice as productive without harming the morale of the rest of the team.

If you do audit your team and find that you have mostly A Players, that's great! Prevent your A Players from becoming B Players by creating a safe way for them to talk about skill, knowledge, and leadership gaps that could arise as your company grows. We all have strengths and weaknesses, and it is best to be open with each other about what those are. This way, we can be able to give each other feedback on potential blind spots so that we are constantly improving and sharpening our saws as Stephen Covey taught.

Commitment to ongoing development is the only way to avoid becoming a B Player over time as the company grows and your role within it changes.

Critical Conversatons - The Effective Way

"Great coaches consistently get the most out of the their people, because they consistently put the most in to their people."

- Brian Souza

As a follow up to last week's post on the power and importance of weekly coaching conversations with your employees, below is a short article on how to provide constructive criticism. Again, take action, set up the conversations and begin talking with your employees away from the chaos and stress of the job. Like a football coach - do it in practice, not in the game.

Giving and receiving criticism is an uncomfortable but necessary part of career growth. Here are six ways to do it without being mean.

By Stephanie Vozza

Even when your intentions are good, it can be tough to give constructive criticism. It's an awkward conversation for the giver, and it can spark a negative reaction in the receiver.

Constructive criticism also brings out defensiveness. "Human beings are hardwired to defend themselves when receiving negative feedback," says Shari Harley, founder and president of the management-training firm Candid Culture and author of "How to Say Anything to Anyone: A Guide to Building Business Relationships That Really Work".

"You can't eliminate people's defensive reactions to negative feedback, but you can reduce it, making feedback easier to hear and act upon," she says.

The first step is to make sure you have the right to give constructive criticism, says Robbie Kellman Baxter, founder of the management consulting firm Peninsula Strategies and author of "The Membership Economy". 

She says there are three ways you earn this right:

1. Someone asks for it.
2. Your title grants you permission (you're the boss or the customer).
3. A formal space has been carved out for feedback relating to a particular project.

If you haven't earned the right to give constructive criticism, you need to ask permission, says Kellman Baxter. "Be open to the idea that they might say no," she says.

Once you're in a position to provide feedback, there are six ways to offer constructive criticism that helps a situation instead of hurting it:

1. Balance negative with positive.

We've all heard of the criticism sandwich technique: Wedge the constructive statement between two positives. Some experts say it undermines your feedback, but Kellman Baxter says it's important to point out what people do right as well as what they do wrong.

 

"In general, you should be giving five pieces of positive feedback for every one piece of negative," says Kellman Baxter. "Asking managers to get into this habit does wonders for strengthening morale and results."

 

And always end on a good note, adds Thomas: "Let the employee know what you value in them and how they benefit the company," he says. "This will ensure that they still feel valued as an employee." 

2. Don't make it personal.

Constructive criticism isn't about insulting someone; it's pointing out what they can do better. It should focus on the behavior and not the person.

 

"It's not, 'You're so bossy,'" Kellman Baxter says. "It's, 'At yesterday's meeting, you didn't ask for other opinions and didn't include the rest of us in the decision making.' That's specific."

3. Include recommendations for improvement.

Most times, employees didn't know they were doing something wrong, Thomas says. "They are caught off guard by the conversation and ultimately need assistance to improve," he says.

He suggests providing examples or recommendations on how to improve that let the employee know that you are there to help, not criticize them.
 

4. Don't "save up" your negative feedback.

People often hoard feedback until a situation becomes so frustrating that they can't help but speak up, says Harley. "Because they waited too long to say what they think, many more words come tumbling out than is either necessary or helpful."

Instead, make it a practice to give small amounts of feedback one at a time - one or two strengths and areas for improvement during a conversation. People cannot focus on more than one or two things at a time, says Harley.
 

5. Be timely, but not immediate.

Give feedback close to the time of an event, but not when you're upset, says Harley. Wait 24 hours to give feedback if you're upset, but not longer than a week after an event occurs.

"The time to fix a problem is when no one is upset," she says. "I call this practice the 24-hour guideline and the one-week rule: Wait 24 hours to give feedback if you're upset, but not longer than a week after an event occurs."
 

6. Finally, be discreet.

"Praise in public, criticize in private," says Harley. Make sure all negative feedback discussions happen behind a closed door.

What Do Your People Want That You Fear Providing?

"Where do I stand? How am I seen? What do you think?

I don't mean to sound needy...but a little bit of information could go a long way with me."

- An employee (maybe yours)

Ok - I spent over 30 years in various levels of management and the last 5-6 working with business owners and their teams. Let's face it - we all know that employees want to meet with us but I have come to the conclusion as a group we fear having those conversations. Yes we fear them!

We fear that we will not have the answers to the questions that might come up -i.e. "if I'm doing a good job when can I get promoted, what is the "career ladder" for me here?" Being honest, maybe critical, when asked "how am I doing"?

Diana Southall of The People Plan brought this to my attention:

Ignoring your team members is actually 20x worse than being a critical boss!

In fact, a recent study of employees found that of employees who feel ignored by their direct manager, only 2% reported being engaged with their job, compared to 45% of employees who report their boss focused on their weaknesses, and 65% of those with a positive focused manager.

Almost half of these "invisible" team members reported to be "actively disengaged" - meaning that they consciously perform lower - versus 1% of those with positive managers.

Seriously, if you are not coaching your team (in practice, in weekly 15 minute coaching conversations), then they are like a boat without a captain - sailing toward the horizon with no particular place to go. (I just watched Pirates of the Caribbean again- what a fun study in leadership!)

To be effective, team members need to be

• clear on the ultimate purpose of their task, jobs and organization,
• given regular assistance prioritizing their efforts,
• performance improving feedback and training, and
• recognition when they get it right or step up.

Thanks Diana,  and I'll add "conversations and help in career development!"

We say to ourselves, "We don't have a career ladder here" or "I might say the wrong thing and they will start looking for another job", or "I don't know the right questions to ask", or "I don't know how to help them with developing their career", etc.

So we fear it and we ignore it - at our expense.

I just read a new book by Beverly Kaye and Julie Winkle Giulioni, "Help Them Grow or Watch them Go". 

They have broken it down into the simplest form and provided questions and blueprints for taking the fear out of these Weekly Coaching Conversations. You don't need a career ladder to keep your employees engaged and achieving their career goals - you simply help them be accountable for their own careers and provide opportunities to be promoted in place.

Here is my book report breaking down the key elements, or buy the book yourself.

Take action and the fear melts away. Your employees want to talk to you - so set up weekly 15 minute coaching conversations and begin coaching and engaging your employees. Start taking action, having conversations and the fear melts away.

Fire Gloomy, Hire Happy

"In the minds of great managers, consistent poor performance is not primarily a matter of weakness, stupidity, disobedience, or disrespect. It is a matter of miscasting."

- Marcus Buckingham

"It's not the people you fire who make your life miserable. It's the people you don't."

- Dick Grote

"We don't develop friendly people, we hire them."

- Conrad Hilton

Tom Peters is a business guru and former McKinsey consultant who was my "mentor" during the 80's. I read all of his books and watched many documentaries he made on successful businesses who turned around their fortunes - like Harley Davidson.

 

Peters recently posted a formula on his website for making a business, or any team, truly great. I was delighted to see this formula, because it matched up exactly with my own experience of working with leaders and teams over the past 7 years. 

 

This formula works. But it's so simple, it might not be taken seriously. In fact, it's so simple it almost embarrasses me to send it to you today. But here goes. One promise: follow the formula and your numbers will jump through the roof; experience proves it.

From Tom Peters:

 

The Way to Succeed:

HIRE SUNNY! FIRE GLOOMY!

Hire/Promote those with....Sunny Dispositions.

Fire those with perpetually...Gloomy Dispositions.

(Hint: The farther up the Organization you go, the more important this gets.)

Rule: Leaders are not permitted to have "bad days"....especially on Bad Days!

Rule: One Sad Dog can infect a group of 100.

Rule: One Energetic, Optimistic, Sunny Soul can motivate an army to move a mountain.

Thank you Tom! Remember - knowing is not enough, doing is all that matters.

Smooth Sailing in Rough Waters: Use KPIs to Throw a Lifeline

"Great coaches consistently get the most 

out of their people, because they consistently put the most 

in to their people."

- Brian Souza

Article from Rhythm: 

Isn't it funny how quickly our workload can change? One day we're doing fine, managing our daily tasks, making progress on our priorities and feeling connected to our teammates. Then the next thing you know, a project goes off track, a client has a problem, or a teammate is out sick, and all of the sudden we're behind, feeling overwhelmed and frustrated. Maybe it was just a bad day and tomorrow we'll be back on track, or maybe it's the first in a series of days that has the potential to wear us down, increasing our chances of making mistakes and significantly effecting our outlook and energy.

It happens to everyone at some point. In fact, it's probably happening to someone on your team right now. The question is not whether it will happen. The question is who is it happening to and how can you help. Someone needs a lifeline - a rope typically thrown to rescue someone experiencing difficulties in the water - and someone on your team probably has one. You just need a way to match these two up.

 

Ever had an employee walk in your office and give notice and nobody had a clue?Here's an idea that has been working for us, and maybe it will work for you, too. We created a Rock on everyone's Dashboards, for the Weekly Huddle, for every individual on our team called Employee Health. Each week, every member of our team has a chance to reflect on their workload, how they're feeling about it, and their overall feeling their week. We've established Red-Yellow-Green success criteria for this Rock that is consistent for each person.

Green = feeling balanced.  This our goal. We all have very busy schedules, multiple responsibilities and high expectations for ourselves and each other. The goal is not to be ahead, or even caught up... just feeling somewhat balanced. Even though we may have had a day or two of feeling behind or overwhelmed, overall, we feel like everything is under control and we're on track. 

Yellow = feeling full.  This does not necessarily mean we've got a problem or that we're in trouble, just that we're in a period of time where our schedule is tight, our plate is extra full, and if something unexpected happens, we may need some help. While stating Yellow is not unusual and certainly not a sign of weakness, we're all very careful not to overuse it. We take our Yellows very seriously, and whenever we see this status in our Weekly Meeting, we pause to find out what's going on and if there's anything we can do to help out.

Red = feeling overwhelmed.  This is one way for members of our team to ask for help. The Red status on this KPI is rare, so you better believe we jump into action when we see it. Sometimes this status reflects a personal situation that causes someone to be out unexpectedly, or an unplanned project that is urgently assigned. Whatever the cause, we will stay here until we develop a plan to overcome the issue. All hands are on deck when we have a Red, and it's great to see the team pull together to help out.

As a team leader, it's great to have a visual indication of how everyone on my team is doing. I never want to see anyone choosing Red more than two weeks in a row. And if I see a pattern of Yellows occurring over time with anyone, I know to look deeper to see if their responsibilities or projects have experienced scope creep.

 

As an individual on the team, it's great to have this mechanism in place that causes me to reflect on how I'm feeling every week. Without it, I can imagine that it might be easy to trudge along week after week, living in the Yellow and Red area, not realizing I was in danger of burning out until it was too late. And many times, when I pause to status Green, I'm reminded just how much I enjoy my work and how energized I am by the fast pace and high expectations.

As a member of the team, it's so reassuring to see the team jump into action to help out when someone needs a lifeline. I think the willingness to status Yellow or Red and the positive reaction of the team when it happens are signs of a very healthy, high performing team.

 

So, how is your team doing? Does anyone need a lifeline?

My Input:

Another tool to keep your pulse on your employees overall morale is the device from Celpax that is mounted on the wall at the door. Employees push red, yellow, green each day as they leave. It tracks and provides the overall trends daily, weekly, monthly.  Low cost and paid monthly. 

Caves and Fears

"The cave you fear to enter holds the treasure you seek."

- Joseph Campbell

Why do business people need a coach or, better still, want a coach?

Think about athletes - even the best in the world - why do you think they seek out coaching? They can't afford to be average. They have to be, and stay, at the top of their game or they lose their jobs and soon their careers.

The way the world is today, people in business can't afford to be mediocre or average, or they will lose their jobs and their livelihood. Much of the "conventional wisdom" has proven to be obsolete and sometimes just wrong. We are truly in a global marketplace where technology and information is changing and so prolific you can't keep up with it on your own.  

A coach can sort it all out and bring you up to date on best practices, help you question your beliefs, and be the accountability you need to prioritize and get the right things done.

Is talking to a coach your dark cave? Maybe that is where the treasure is.